Digitized by the Internet Archive
in 2013
http://archive.org/details/supermarketingOOchar
SUPERMARKETING
FRANK J. CHARVAT, Ph.D.
Associate Professor of Marketing
School of Business Administration, Emory University
THE MACMILLAN COMPANY NEW YORK
\X7?
© Frank J. Charvat 1961
All rights reserved — no part of this book may be reproduced in
any form without permission in writing from the publisher, except
by a reviewer who wishes to quote brief passages in connection
with a review written for inclusion in a magazine or newspaper.
First Printing
Library of Congress catalog card number: 60-14487
The Macmillan Company, New York
Brett-Macmillan Ltd., Gait, Ontario
Printed in the United States of America
PREFACE
The supermarket today is regarded as an established institution,
yet only thirty years ago it was but an embryonic idea. Already,
this marketing innovation has left an indelible imprint on most as-
pects of food manufacturing, processing, wholesaling, and retailing.
The lack of a text devoted to a comprehensive appraisal and ana-
lytical study of the industry has prompted the writing of this book.
Directed toward a broad audience, Supermarketing is intended as
an aid to food and related-industry entrepreneurs, executives, key
employees and those aspiring to positions of responsibility, and
marketing students at the university level. It is hoped that all will
find something helpful here. Top executives, for example, who must
be well informed about all the many facets of supermarket opera-
tion, will find of particular interest the chapters on financial con-
siderations, the impact of the supermarket on the food industry, and
managerial policy and practice. Superette managers who want to at-
tain supermarket status for their enterprises will find of value the
store-operation sections and the appendix. Food brokers, manufac-
turers' salesmen, processors, and wholesalers will be interested in
the entire text, especially the sections on buying operations and the
supermarket's impact on the industry. Executives of retailing opera-
tions affected by the supermarket may find information relevant to
the increasing competition they face from the supermarkets. Finally,
students of marketing at universities, particularly in the areas of re-
tailing, can learn principles and practices which will be of value
m
iv Preface
in their future business careers. The book may also be of use as a
supplement in many different courses in marketing.
The author owes a debt of gratitude to the library of the Super
Market Institute for the use of its excellent research facilities. Re-
search there was facilitated by the cheerful cooperation of the li-
brarian, Catherine McAndrews. Other invaluable aid in the gather-
ing of pertinent data was rendered by the Institute's Research De-
partment, directed by Curt Kornblau. The book has benefited greatly
from the counsel of Dr. Richard M. Clewett, Professor of Marketing
at Northwestern University. The analytical criticism of Dr. W. Tate
Whitman, Professor of Economics at Emory University, has been
equally helpful. Dr. Patrick Kemp, also of Emory University, edited
the sections on financing, operations, and managerial policy and
perspective. Facilities for research and the mechanical work of com-
piling the text were provided by Emory University's School of Busi-
ness through the assistance of Dean Guy W. Trump and the late
Dean Gordon Siefkin. Thanks go also to all the other university
colleagues and business associates who were so helpful.
Above all, credit is due my wife, Theodora, for her help with the
editing and other intricate details and for her encouragement and
inspiration. Nor do I forget my son, Jimmy, who always wanted to
help.
Frank J. Charvat
Atlanta, Georgia
CONTENTS
1. INTRODUCTION 1
Significance of the supermarket industry • Composition of the
industry in 1958 • Approach of the book to study of the super-
market industry • Scope of the study
2. DEVELOPMENT OF THE SUPERMARKET 11
Introduction • Large markets prior to 1930 • Era of the
"cheapy" supermarket, 1930 to 1935 • Period of experimental
growth and development, 1935 to 1946 • Postwar period of
modern supermarket expansion • Summary
3. EXTERNAL FACTORS THAT INFLUENCED THE
GROWTH OF THE SUPERMARKET INDUSTRY 30
Introduction • Changes in personal disposable income and per-
sonal consumption expenditures • Shifts in upper income shares •
Changes in the pattern of food consumption • Changes in ex-
penditures in food stores • Technological developments and
their adoption • Population growth and shift to the suburbs •
Retail trend toward decentralization • Shift in consumer buy-
ing habits, including one-stop shopping and scrambled mer-
chandising • Additional external factors that influenced the su-
permarket development • Market of the 1960's • Summary
4. SELLING OPERATIONS 53
Introduction • Volume — a supermarket necessity • Sales prac-
tices of supermarkets • Summary
V
7s
vi Contents
5. BUYING OPERATIONS AND MARGINS 75
Introduction • Cost of goods sold • Gross margin • Summary
6. EXPENSES AND PROFITS
Introduction • Operating expenses • Profit • Summary
7. FINANCIAL FACTORS 121
Introduction • General asset structure of a supermarket • De-
velopment of a representative supermarket balance sheet • Cur-
rent assets • Equipment needs in a supermarket • Land and
building • Intangible assets • Leasing of fixed assets • Sources
of capital — debt • Sources of capital — ownership • Profits on
equity capital • Results of the analysis of certain financial state-
ments of supermarket chains • Summary
8. EARLY SUPERMARKET IMPACT ON THE FOOD
STORE INDUSTRY 152
Introduction • Los Angeles area supermarkets • Invasion of the
East by the ' cheapy" supermarket • The small independent
grocer versus the "cheapy" supermarket • Food chains versus
the "cheapy" supermarket • The case of the Great Atlantic &
Pacific Tea Company • Supermarket advantages for large food
chains • Summary
9. SUPERMARKETS BECOME BIG BUSINESS-
INTEGRATION 168
Introduction • Chains dominate supermarket industry • Inte-
gration • Concentration among major food chains • Food chain
dilemma — acquire or expire • Voluntary chain growth • Sum-
mary
10. CHANGES IN NUMBER OF FOOD STORES AND
THEIR SALES VOLUME 188
Introduction • Changes in the number of food stores • Changes
in the sales by type of food store • Conclusions on changes in
the number of food stores and their sales volume • Summary
11. CHANGES IN THE SALES OF MAJOR PRODUCT
LINES BY TYPES OF FOOD STORE OUTLETS 199
Introduction • Sales of major product classes in supermar-
kets • Sales of meat products, poultry, and seafood by type of
food store • Sales of fresh fruit and vegetables by type of food
Contents vu
11. CHANGES IN THE SALES OF MAJOR PRODUCT
LINES (Continued)
store • Sales of confectionery products by type of food store •
Sales of bakery products by type of food store • Sales of canned
goods and grocery items by grocery stores and combination
markets • Sales of nonfood products in grocery stores and com-
bination markets • Summary
12. MANAGERIAL POLICY AND PERSPECTIVE 221
Introduction • Dynamic nature of the supermarket • Position in
its growth cycle • Supermarket trend toward "bigness" • Or-
ganization concepts • Science of decision making in manage-
ment -fUse of research)- Relationship of profit to volume, fixed
expense, and promotion • Merchandising policies • Store oper-
ations • Financing growth • Deterrents to supermarket growth •
The illusiveness of good will
APPENDIX A 253
BIBLIOGRAPHY 265
INDEX 271
TABLES
1-1 Total Sales by Selected Types of Retail Outlets for the Year
1958 2
1-2 Number of Supermarkets in the United States, Estimated
Sales Volume and Per Cent of Grocery Store Sales and of
Food Store Sales Transacted by Supermarkets for the Years
1935 to 1958 3
1-3 Ownership of Supermarkets Classified by Size of Organiza-
zation for the Year 1958 4
1-4 Number and Sales of Supermarkets Classified by Dollar Vol-
ume for the Year 1958 5
2-1 National Income and Employment in the United States for
the Years 1929 to 1936 20
2-2 Profit and Loss Statement for the Average Grocery Store in
the Louisville Survey as a Percentage of Sales for the Year
1929 22
2-3 Condensed Profit and Loss Statement of the Retail Store Op-
eration of the Great A & P Tea Company as a Percentage of
Sales for the Years 1929 to 1935 23
2-4 Operating Statement of the Big Bear, Elizabeth, New Jersey,
for the Year 1933 24
2-5 Operating Statement of an Average Independent Combina-
tion Market as a Percentage of Sales for the Year 1935 26
2-6 Number of A & P Supermarkets and Small Economy Stores
for the Years 1936 to 1943 27
3-1 Total Disposable Personal Income, Total and Per Capita Per-
sonal Consumption Expenditure, and the Cost of Living In-
dex in the United States for the Years 1935 to 1958 32
3-2 Yearly Consumption of Food Products per Capita, Retail-
Weight Equivalent (in pounds) by Major Food Groups for
the Years 1929, 1948, and 1954 34
3-3 Total Food Store Sales, Per Capita Food Store Sales, and
Retail Food Price Index for the Years 1935 to 1958 36
3-4 Percentage of Personal Income Expenditures Spent in Food
Stores 37
3-5 Motor Vehicle Registrations (in thousands) in the United
States for the Years 1915 to 1958 38
Vlll
42
43
44
Tables 1X
3-6 Manufacturers' Sales by Number of Units of Refrigerators
and Home Freezers for the Years 1926 to 1956 39
3-7 Shift in Population in 140 Central Cities of the United States
with 50,000 Population and Over for the Years 1930 and
1940
3-8 Shift in Population in 168 Central Cities of the United States
with 50,000 Population and Over for the Years 1940 and
1950
3-9 Retail Trade by City Size for the Years 1954, 1948, and
1939
3-10 Number of Supermarkets in the United States by Size of the
Community for the Years 1940, 1950, and 1954, and the Per-
centage that Each Community is to the Total 46
3-11 Findings from McCalFs Magazine Consumer Diary Study of
Food Purchases Made by 1,090 Families for One Week in
the Year 1956 48
4-1 Sales of Certain Classes of Retail Stores and Total Retail
Sales in the United States for the Years 1929, 1939, 1948,
and 1954 (in billions of dollars) 54
4-2 Operating Statistics of Selected Food Chains Expressed as
a Percentage of Sales for the Years 1955 to 1958 55
4-3 Operating Statistics of Wilt's Supermarket, Elkhart, Indiana,
Expressed as a Percentage of Sales for the Year 1956 56
4-4 Maximum Trading Area Radius for a $500,000 Yearly Vol-
ume (and over) Supermarket by Size of Community 65
4-5 Annual Inventory Turnover of Selected Supermarket Chains
for the Year 1956 70
4-6 Annual Inventory Turnover of Various Lines of Retailing for
the Year 1954 71
4-7 Source of Nonfood Products in Supermarkets Expressed as a
Percentage of Stores Using the Source 72
5-1 Grocery Promotion and New Item Fact Sheet 81
5-2 Gross Margin, Expense and New Profit (before taxes) as a
Percentage of Sales for Selected Supermarket Chains for the
Year 1956 91
5-3 Gross Margins in Supermarkets by Major Product Lines 92
5-4 Gross Margin for Various Kinds of Retail Establishments for
the Year 1954 94
i Tables
6-1 Operating Statistics of Selected Super Market Institute Mem-
bers as a Percentage of Sales for the Years 1954 to 1958 100
6-2 Operating Expenses as a Percentage of Sales for Various
Types of Retail Stores for the Year 1954 102
6-3 Major Operating Expenses as a Percentage of Sales for Cer-
tain Types of Retail Outlets 103
6-4 Advertising Expenditures by Media for the Supermarket In-
dustry as a Percentage of Total Dollar Ad Expenditures for
the Year 1956 105
6-5 How Stamps Affect Supermarket Sales 107
6-6 Functional Expense Analysis of Selected Food Chains as a
Percentage of Sales for the Years 1950 to 1958 110
6-7 Itemized Expenses Classified by Functions for Selected Food
Chains for the Year 1958 111
6-8 Net Profit as a Percentage of Sales for Various Types of Re-
tail Stores for the Year 1954 119
7-1 Balance Sheet and Yearly Operating Statement of a Repre-
sentative Supermarket 124
7-2 Sources of Capital for the Supermarket Industry 138
7-3 Sales, Cost, and Profit Relationships for the Representative
Supermarket at Various Levels of Volume 146
7-4 Results of Financial Ratio Analysis of Certain Major Super-
market Chains for the Years 1950 and 1956 150
8-1 Statistics on the Number and Volume of Sales of Large Com-
bination Markets in the United States for the Years 1929 and
1935 (in thousands) 156
8-2 Number of Stores in the Five Largest Food Chains for the
Years 1934 to 1940 159
8-3 Sales for the Five Largest Volume Food Chains for the Years
1934, 1937, and 1940 (in millions) 159
8-4 The Total Number of Stores and Number of Unprofitable
Units of the A & P Co. for the Years 1933 to 1941 161
8-5 Total Sales of A & P, All Grocery and Combination Markets
and All Food Stores for the Years 1929 to 1943 163
8-6 Statistics on Total Number of A & P Stores, Number of Su-
permarkets, Total Sales and Supermarket Sales for the Years
1936 to 1943 (sales in millions of dollars) 164
Tables **
8-7 Operating Results of the A & P, Detailed into Economy
Stores and Supermarkets for the Year 1941 (sales in thou-
sands) 166
9-1 Number of Food Manufacturing Plants Operated by 62
Major Food Chains and the Value of Shipments from these
Establishments for the Years 1954 and 1958 171
9-2 Dollar Sales of Ten of the Largest Food Store Chains for the
Years 1945 and 1958 (in millions) 173
9-3 Sales of Ten Major Supermarket Chains and Total Food
Store Sales for the Years 1945 and 1958 (in millions) 173
9-4 Number of Stores, Sales per Store, and Net Income per Store
for American Stores Company for the Years 1945 to 1958 174
9-5 Number and Volume of Food Stores That Were Acquired by
Food Chains for the Years 1949 to 1958 176
9-6 Chain Grocery Store Sales Classified by Volume, Expressed
in Dollars and as a Percentage of Total Chain Grocery Sales
for the Years 1951 and 1957 177
9-7 Number and Volume of Food Stores That Were Acquired
by Ten Major Food Chains for the Years 1949 to 1958 179
9-8 Wholesale Sales of Certain Voluntary Food Chain Groups in
the United States for the Years 1948, 1954, and 1958 (in
millions) 186
10-1 Number of Food Stores in the United States by Type of
Store for the Years 1929, 1954, and 1958 189
10-2 Food Store Sales in the United States by Type of Store for
the Years 1929, 1954, and 1958 i92
11-1 Results of Three Recent Studies on the Percentage of Sales
of Major Product Classes Transacted by Supermarkets 200
11-2 How an Average Customer Spends Her Supermarket Dollars
for Grocery Products and the Percentage Gross Margin on
Sales of these Items 201
11-3 Estimated Meat, Poultry, and Seafood Sales by Major Type
of Food Store Outlet for the Years 1929 and 1954 203
11-4 Estimated Fresh Fruit and Vegetable Sales by Major Type
of Food Store Outlet for 1929 and 1954 205
11-5 Sales of Confections by Certain Major Retail Outlets for the
Years 1929 and 1954 208
x* Tables
11-6 Estimated Bakery Product Sales by Major Type of Food
Store Outlet for the Years 1929 and 1954 210
11-7 Sales of Grocery Product Items by Major Food Store Outlets
for 1929 and 1958 212
11-8 Estimated Percentages of Supermarkets That Handle Non-
food Lines Together with Major Source of Supply for the
Year 1958 215
11-9 Sales of Nonfood Items in Grocery Stores and Combination
Markets in Dollars and as a Percentage of Total Consump-
tion for the Year 1958 216
INTRODUCTION
SIGNIFICANCE OF THE SUPERMARKET INDUSTRY
The supermarket, which is a relatively new institution, already \
transacts more dollar volume per year than all department, variety,
and drugstores combined. Furthermore, as comparative statistics in
Table 1-1 indicate, the supermarket industry has surpassed volume-
wise all other types of nondurable-goods stores and now ranks as
"volume king" of traditional retailing.1 Only the automobile dealers
—durable-goods outlets with large dollar-unit sales— exceeded the
supermarket industry in 1958 on a dollar-volume basis. But con-
sumers basically do not envisage an automobile dealer as a retailer.
The 20,413 supermarkets, supermarts, or supers in the United
States in 1958 transacted an estimated volume of $28.7 billion. This
phenomenal $28.7 billion volume, averaging more than $1,404,000
per supermarket, represented 64 per cent of all grocery store sales
and 57 per cent of the total food store sales in the country.
Yet, 30 years ago, the supermarket industry was comprised of only
a few hundred stores scattered throughout the Far West and the
Southwest, Statistics in Table 1-2 evidence the phenomenal growth
of this industry, which literally has leaped into national prominence.
However, statistics in Table 1-2 do not show the complete extent of
food sales in large markets inasmuch as the volume prerequisite for
admission to the "charmed circle" was changed twice in the past
nine years. Prior to 1951, a qualifying super needed to transact
a yearly volume of $250,000. In 1951, the standard was raised to
1 The term traditional retailing includes bakery, clothing, confectionery, deli-
catessen, department, drug, furniture and appliances, grocery, hardware, shoe,
variety, and vegetable and fruit stores, and service stations.
1
2 Supermarketing
TABLE 1-1 *
Total Sales by Selected Types of Retail Outlets for the Year 1958.
Sales
Type of outlet (in billions)
Automobile dealers $31.63
Supermarkets f 28.66
Gasoline service stations 15.73
Department stores 12.50
Furniture and appliance stores 10.32
Drug stores 6.59
Variety stores 3-59
* U.S. Bureau of the Census, Survey of Current Business, Government Print-
ing Office, Washington, D.C., March, 1959, p. s-9.
f "Industry Survey," Super Market Merchandising, XXIV, no. 3, April, 1959,
p. 42.
$375,000; and in 1954, the volume requirement was lifted to $500,000
per year. Under the $375,000 requirement, the number of super-
markets in 1956 was 22,567, with sales of $23.2 billion.2
COMPOSITION OF THE INDUSTRY IN 1958
It is difficult to visualize an American who hasn't shopped in a
supermarket. Supers seem to abound everywhere. Yet, what is the
current status as to components of this industry that literally revo-
lutionized not only food distribution but the entire retailing system?
Data in Table 1-3 indicate 20.7 per cent or 4,236 of the super-
markets are individual units as far as ownership and operation are
concerned. Many started as small stores. Whatever profits were
made have gone into building up the store into a sizable venture,
inasmuch as more facilities are needed constantly. An individual
super can require ownership capital of several hundred thousand
dollars invested at one location. Obviously, close supervision is
needed to manage a business of this scope, which averages over
$1,000,000 volume per year. However, an additional 6.6 per cent,
or 1,343 of the supers, have branched out into two- and three-unit
2 "Super Market Boom Rides out Another Year," Super Market Merchandis-
ing, XXII, no. 4, April, 1957, p. 104.
Introduction
TABLE 1-2
Number of Supermarkets in the U.S., Estimated Sales Volume,
and Per Cent of Grocery Store Sales and of Food Store Sales
Transacted by Supermarkets for the Years 1935 to 1958.
Year
Number of
supermarkets *
300
1,200
3,066
Estimated
supermarket
sales *
(in millions)
Supermarket
sales as a per
cent of grocery
store sales \
Supermarket
sales as a per
cent of food
store sales \
1935
1936
1937
$ 150
500
800
—
1.7
5.6
8.2
1938
1939
1940
3,700
4,982
6,175
1,000
1,500
2,000
19.4
24.0
10.5
14.7
18.3
1941
1942
1943
8,175
9,011
9,100
2,500
3,000
3,500
26.0
24.7
26.4
19.8
19.0
20.0
1944
1945
1946
9,460
9,575
10,057
3,600
4,500
5,500
26.4
31.4
29.8
18.9
22.7
22.7
1947
1948
1949
10,846
11,970
13,089
7,000
7,780
8,507
31.3
32.3
35.2
24.6
25.1
27.4
1950
1951$
1952
14,217
15,383
16,501
10,250
12,356
14,096
40.3
40.7
43.7
31.3
32.9
35.4
1953
1954$
1955
17,550
13,598
15,153
16,092
15,980
18,644
47.9
45.8
50.5
39.4
38.5
42.7
1956
1957
1958
17,024
18,843
20,413
21,797
25,235
28,664.
55.7
59.5
64.3
■ 47.4
52.8
56.9
* Yearly surveys published in April editions, Super Market Merchandising.
f Calculated by dividing supermarket sales by total grocery store sales and
total food store sales, obtained from U.S. Department of Commerce, Survey of
Current Business, Government Printing Office, Washington, D.C., March edi-
tions.
\ Statistics for the years prior to 1951 were for stores with a minimum volume
of $250,000. Data for the years 1951 through 1953 were for stores with a mini-
mum volume of $375,000. Since 1954, data include stores with a minimum vol-
ume of $500,000.
Supermarketing
TABLE 1-3*
Ownership of Supermarkets Classified by
Size of Organization for the Year 1958.
Size of Number of % of $ Sales % of
organization stores stores (in millions)
I store 4,236 20.7 5,224 18.2
2-3 stores 1,343 6.6 1,813 6.3
4-10 stores 1,244 6.1 1,835 6.4
II or more stores . . 13,590 66.6 19,792 69.1
20,413 100.0 28,664 100.0
* "True Look at the Super Market Industry," Super Market Merchandising.
XXIV, no. 4, April, 1959, p. 102.
operations in an effort to increase earnings, to diversify risk, and to
afford a source for reinvestment of earnings. An additional 1,244
stores, or 6.1 per cent of the supers, have grown into larger opera-
tions of from four to ten units in a given community or region. Con-
sumers frequently refer to these as chains. However, by definition,
a chain must contain eleven or more units. Most of the concerns in
this four- to ten-unit group are the result of expansion from one
store. And, over the years, through opening new stores and acquir-
ing existing ones by exchange of stock or outright purchase, the cor-
porate chain has become the dominant force in the industry, with
66.6 per cent of the stores and 69.1 per cent of the volume. Chains
tend to operate the larger stores.
While 33 per cent, or 6,813, of the supers are listed as nonchains
or independents, the bulk of these (more than 70 per cent) are
members of wholesale- or retail-sponsored voluntary chains.3 These
voluntaries, exemplified by the Independent Grocers Alliance of
America and the Red and White Corporation, operate primarily as
buying organizations for their members, although they also offer
3 Facts in Grocery Distribution (New York: Progressive Grocer, 1958), p.
F— 15.
Introduction 5
merchandising, advertising, and promotional services. Thus the buy-
ing power in supermarts tends to be concentrated.
Statistics in Table 1-4 reveal that 9,223, or about 45 per cent, of
the supers transacted a yearly volume of from $500,000 to $1,000,-
000. The markets transacting between $1,000,000 and $2,000,000
yearly represented only 39.9 per cent of the supers but were the
major class volumewise. If $110 per square foot of space in a super
TABLE 1-4*
Number and Sales of Supermarkets Classified
by Dollar Volume for the Year 1958.
Number of % of $ Sales % of
$ Volume markets markets (in millions)
500,000- 999,000 9,223 45.2 $ 6,641 23.2
1,000,000-1,999,000 8,139 39.9 12,045 42.0
2,000,000-4,999,000 2,869 14.1 8,492 29.6
5,000,000-and over 182 08 1,485 5^
* "True Look at the Super Market Industry," Super Market Merchandising,
XXIV, no. 4, April, 1959, p. 102.
is used as an approximate standard, the latter market would range
from 11,000 sq ft to 22,000 sq ft of space, exclusive of any outside
facilities.4 The colossuses with sales of over $5,000,000 are insignifi-
cant numerically but transact 5 per cent of supermarket sales.
Where are the supers located geographically? Although super-
markets are found in every state, plus the District of Columbia, they
have tended to concentrate ( obtain a larger share of the food busi-
ness ) in the newer growing areas. Supermarts transacted more than
70 per cent of the grocery store sales in Arizona, California, Colo-
rado, Florida, Louisiana, and Nevada.5 Texas has also been a mecca
for supermarkets. In Florida alone, supers transacted 87 per cent of
the grocery sales. Supermarkets also are especially dominant in New
4 "Super Market Boom Rides out Another Year," Super Market Merchandis-
ing, op. cit.
5 Ibid.
6 Supermarketing \
Jersey and Michigan, two original "hot beds" of supers in the early
1930s.
The 1958 supermarket had 23.6 full-time and 6.7 part-time em-
ployees per store.6 These data include central office and warehouse
personnel as well as store employees. Roughly projecting these sta-
tistics to a total industry basis would indicate 400,000 to 500,000
full-time and 125,000 part-time workers.
APPROACH OF THE BOOK TO STUDY OF THE
SUPERMARKET INDUSTRY
The size, significance, and composition of the industry have been
presented to show the importance of the supermarket in the area of
distribution. This is a field in which firms are big business. In trac-
ing the development of the supermarket to its present status, it is
necessary to examine certain issues: What is a supermarket? Why
did the industry start? Why did the industry develop so rapidly?
What practices and policies did supermart management adopt to
generate expansion? Furthermore, since such rapid growth was cer-
tain to have its impact upon the existing marketing order, what
changes in the food store sales pattern resulted? What shifts oc-
curred in the sales and major product fines of other types of stores
that were encroached upon by the invading supermarket? An ex-
amination of these issues forms the core of this text.
Definition of a Supermarket
First consider the term supermarket, which did not appear in |
Webster's Unabridged New International Dictionary until 1956.7 1
Basically the definition evolves around the two terms super and ||
market.
Super means "above," "over beyond," "that which surpasses."
6 "True Look at the Super Market Industry," Super Market Merchandising*
XXIV, no. 4, April, 1959, p. 102.
7 Certain organizations and authorities who pioneered in this field employed
the term super market as two words instead of one, as Webster lists it. As a
result of usage over the years, this spelling also has found wide support in the
industry.
•7
Introduction
Market refers to a "place" where merchandise is displayed or avail-
able for sale. Marketing can be considered the act of selling or pur-
chasing in, or as in, a market. Therefore, in a broad sense, super-
marketing can be considered the act of marketing on a large scale
or in a manner that surpasses ordinary marketing.
However, the term supermarket first became associated with the
large food stores that developed in the Far West in the 1920's, and
through usage the term became synonymous with this type of food
retailing. It is in this sense that the term "supermarketing" is used
in this text; namely, it describes the marketing activity in the large
type of retail food store known as a supermarket.
Next, the specific definition of a supermarket must be considered.
This is imperative in order to gather statistical material and to ana-
lyze the industry. Literally scores of definitions have been formu-
lated over the years. These have been subject to changes because
of wide diversity and extremely rapid growth. Diversity has existed
in (1) number of stores by owners, (2) sales volume per unit, (3)
product lines handled, and (4) regional features. In this book the
accepted definition is:
A supermarket is a departmentalized retail food store having four basic
food departments— self-service groceries, meat, produce, and dairy— plus
any number of other departments, with the establishment doing a mini-
mum yearly volume of $500,000.8
Innovation
The question of definition was answered at the start. Next, what
brought about the advent of the supermarket? In the 1920's the food
8 Authorities in the field have differed as to what the minimum volume of a
supermarket should be. Prior to 1951, the two major sources of statistical infor-
mation in the industry-the magazine, Super Market Merchandising, on* the
trade association, Super Market Institute— were in accord on the $250,000 mini-
mum volume. In order to make adjustment for the change in the rising level of
food prices and for the trend toward larger stores, both raised their minimum
volume in 1951. The $375,000 volume was selected by Super Market Merchan-
dising because it corresponded to the O.P.S. classification for Typer 4 stores
The Super Market Institute in 1951 raised its minimum volume to $500,000. In
1954 Super Market Merchandising did likewise, and both sources once agam
were in agreement as to volume.
® Supermarketing
store industry was composed of many single- or limited-line outlets
such as dairy stores, grocery stores without meat, meat markets, con-
fectioners, and delicatessens. The movement toward multi-line opera-
tion, however, in the form of the combination market had started.
The two major outlets were the grocery store without meat and the
combination market. Whether independently owned or members of
chains, these were generally small, were located close to the con-
sumer, and offered a variety of services such as credit and delivery.
A marketing innovation, the supermarket, appeared in California
in the late 1920's and several years later in the East. The underlying
forces behind each of these movements were different. Even the
stores were not the same, but each offered a key to the growing im-
portance of the supermarket movement and to changes in the pattern
of retail sales. This subject of development is discussed compre-
hensively in Chapter 2.
Internal and External Factors
The growth of the supermarket industry occurred in an era in
which a maze of particular external influences were present that had
a bearing on its development. Consumer buying habits changed. A
desire for one-stop shopping came into vogue. The automobile came
into wider use for everyday living; refrigeration became a "must"
for most homes. From the depths of a depression, personal dispos-
able income rose to an unprecedented height by 1958. These and
other factors are presented in Chapter 3 to ascertain what influence
they had on the development of the supermarket industry.
How did the food store industry as a group fare in this economic,
technological, and psychological setting? Did the supermarket gain
more in volume than other types of food stores? It was found that it
did. Therefore internal features are examined to discern what prac-
tices the supermarket operators adopted that attracted customers
to them. These techniques are grouped under operational and finan-
cial factors and are given close scrutiny in Chapters 4 through 7.
Such features as buying practices, selling techniques, pricing, ex-
Introduction 9
pense control, profit relationships, and investment requirements are
highlighted. These chapters, which basically contain the principles
of supennarketing, are of special interest to management, owners,
and students.
Impact on Pattern of Food Store Sales
Specifically, what changes occurred in the pattern of food store
sales by 1958 compared with those of 1929 when supermarkets were
for practical purposes nonexistent? An answer to this requires a de-
tailed statistical study of ( 1 ) the number of different kinds of food
stores, (2) sales by type of food stores, and (3) sales of major prod-
uct lines transacted by types of food stores. These three constitute
the pattern of food store sales as defined in this book. The impact
of the supermarket is examined in Chapters 8 through 11. The final
chapter, 12, is devoted to industry trends and conclusions of this
study, written from a management point of view so as to aid present
and future policy and decisions. This final chapter is entitled, "Man-
agerial Policy and Perspective."
SCOPE OF THE STUDY
The growth of the supermarket industry influenced other phases
of food and nonfood distribution besides the food sales pattern. The
supermarket's successful exploitation of self-service influenced other
forms of retailers to review their selling techniques and possibly to
adopt this principle. The addition of nonfood lines by supermarkets
tended to shift the sales pattern by kind of retail outlet for items
such as health and beauty aids, housewares, and certain soft goods.
Manufacturers and wholesalers of food products reviewed their
marketing programs in an attempt to obtain greater distribution of
their lines in supermarkets. Frequently manufacturers sold directly
to supers. Food wholesalers were able to reduce their costs of
operation through cost-plus plans; 9 many worked closely with
9 R. D. Tousley, "Reducing Distribution Costs in the Grocery Field," Journal
of Marketing, XII, no. 4, April, 1948, p. 455.
10 Supermarketing
supers on narrow margins or even sponsored their own supermarts.
All these salient aspects offer challenging facets for study. While
these and other factors are considered in this text, attention is mainly
centered on the innovation, growth, operational features, and impact
of the supermarket on the pattern of food store sales which occurred
simultaneously with the supermarket development.
DEVELOPMENT OF THE
SUPERMARKET
INTRODUCTION
In the preceding chapter, the significance of the supermarket in-
dustry, its definition, the plan of approach, and the scope of this
text were considered. It is the objective of this chapter to study the
development of large markets in the United States from the time
of the earliest Boston public market to the modern supermarkets of
today. Included are the forces that had a bearing on the start of
supermarkets in the Los Angeles area and the East. For convenience
in presentation, the data are examined in chronological time periods.
These are as follows:
1. Large markets prior to 1930
2. The era of the "cheapy" supermarket, 1930 to 1935
3. The period of experimental growth and development, 1935 to
1946
4. The postwar period of "modern* supermarket expansion, 1946
to date
LARGE MARKETS PRIOR TO 1930
In this section the history of early large markets prior to 1930 is
reviewed to ascertain if any met the accepted definition of a super-
market as outlined in this book. This includes an examination of:
(1) early public and private concession-type markets, (2) Piggly
Wiggly stores, (3) "market stores" of the Los Angeles area, and (4)
large markets in the Southwest.
11
12 Supermarketing
Early Public and Private Concession-Type Markets
The concept of a large market is not a recent innovation in the
United States.1 Large markets operating under public ownership
date back to 1658 in Boston.2 Some of the very early ventures were
the Faneuil Hall Market of Boston, the Lexington Market of Balti-
more, and the Catherine Market of New York City. The Catherine
Market by 1860 had 60 enclosed stalls in addition to the areas used
by the open-air vendors. By 1918 the U.S. Bureau of the Census
listed 174 of these large retail markets in cities of over 30,000 popu-
lation.3
Not all the early markets were publicly owned. Privately financed
and operated markets included the Reading Terminal Market of
Philadelphia, the Euclid and 46th Street Market of Cleveland, and
the Pike Place Market of Seattle.
These early markets were housed in a variety of buildings, vary-
ing from sheds or booths (frequently built on public property to
enable farmers to sell their products) to the more elaborate struc-
tures found in New Orleans and San Francisco. They all had com-
mon characteristics: (1) a large area, (2) many stalls, booths, or
departments leased to various proprietors who operated individ-
ually, and (3) a large over-all volume for the market, although each
section had a relatively small sales volume.
Were these supermarkets? A brief description of the mode of
operation of one— the Crystal Palace Market of San Francisco— is
presented to see how it measured against our current definition of
a supermarket.
Crystal Palace Market
This establishment, founded in 1922 and controlled by the owners
of the Emporium, was housed in a 68,000-sq ft building located in
1Paul H. Nystrom, Economics of Retailing (New York: The Ronald Press
Co., 1936), Vol. 1, p. 335.
2 Arthur E. Goodwin, Markets Public and Private (Seattle: Montgomery
Printing Co., 1939), p. 22.
a Ibid., p. 27.
Development of the Supermarket 13
the downtown district.4 Public transportation was good; 80 per cent
of all street cars in the city passed its door. In addition, a 4,350-car
parking lot was immediately adjacent. The multimillion dollar
sales volume of 1929 was divided among the following product
classes: 5
% sales
Meat 18
Fruit and vegetable 16
Grocery 15
Delicatessen 13
Drugs, tobacco, etc 12
Restaurant 10
Dairy '
Fish and poultry 5
Bakery 3
Miscellaneous 1
100
There were 110 departments, with concessions leased on a mini-
mum guarantee basis and every lease containing a percentage-of-
gross-sales clause. Management had control over the kind and qual-
ity of merchandise sold. Extensive advertising was done, with the
market drawing 150,000 people weekly. The appeal was not one of
price; rather, extensive promotions were planned, including car
raffles and public drawings.
This operation, founded in the 1920,s, certainly had many of the
characteristics attributed to a supermarket in Chapter 1. While it
was not a supermarket as defined, since it lacked self-service, it
certainly was a forerunner of the modern super. The lack of self-
service also characterized the other typical, large early markets of
the United States.
Piggly Wiggly Stores
During 1916 in Memphis, Tennessee, Clarence Saunders started
his first revolutionary self-service store in a location formerly oper-
4 The Emporium is a San Francisco department store.
SEmil Dollenger, "Quality, Not Price, Built San Francisco's Grand Crystal
Market," Super Market Merchandising, II, no. 1, January, 1937, p. 3.
14 Supermarketing
ated by a regional chain.6 He emphasized basic principles of stand-
ardization and simplification found in industrial management books
of today.
In the first six months of operation, this store did $114,000 gross
sales at an expense of $3,400— a 3 per cent of sales expense rate—
and experienced a stock turnover of 39 times a year.7 This success
was partly attributed to the innovation of self-service. The idea
grew into a chain of owned and leased stores, with the latter li-
censed to use the name, equipment, and method of operation.
After a series of financial maneuvers, Saunders lost control in
1923. However, the chain continued to expand, and by 1928 reached
a peak of 2,700 stores in 41 states; this was prior to sale of its stores
to Safeway Stores and the Kroger Company.8
Unfortunately, only fragmentary information is available on the
complete operating results of this chain. It was reported in 1920
that the operating subsidiary, Piggly Wiggly Store Company, had
404 units with a yearly volume of almost $60,000,000.9 The average
yearly store volume was $150,000, although the peak store did a
$10,000 weekly sales volume while operating as a self-service com-
bination grocery and meat market.10 The resulting net profits of this
chain from 1919 to 1925 as a percentage of sales were mediocre
(less than 1 per cent); however, detailed expense breakdowns were
not published.11
A separately controlled chain, Piggly Wiggly Western States
Company, reported for the fiscal year 1923 a gross margin of 11.8
per cent and an operating expense of 8.3 per cent.12 These ex-
tremely favorable results compare with today's supermarket, but
they steadily declined thereafter until the chain was sold in 1927.
6 Walter Hay ward and Percival White, Chain Stores (New York: McGraw-
Hill Book Co., Inc., 1922), p. 180.
7 Ibid.
8 Ibid., p. 186.
9R. P. Crawford, "Piggly Wiggly, How It Has Grown," Forbes, October,
1921, p. 15.
io Ibid.
11 Moody's Industrial Manual, 1920-1926.
12 Ibid.
Development of the Supermarket 15
Based on the available information, a few of the Piggly Wiggly
Stores were supermarkets according to our current definition. The
limited data indicated the system, in part, operated at a smaller
expense rate than the existing independent grocer or the chain
economy store whose clerks serviced the trade. But in the era of
the 1920's, the chains were concentrating on clerk-service economy
stores and did not develop the potentialities of self-service.
"Market Stores" of the Los Angeles Area
Two kinds of "market stores" that flourished in the Los Angeles
area prior to 1930 were also supermarkets according to the defini-
tion set forth in this book. These were:
1. The large, self-service food store, which was operated under
centralized control and which, by current standards, would be
judged as an excellent example of a supermarket
2. The open-front, drive-in market, which comprised a group of
independent units in a single building
Ralph's Grocery Company. The first type of these market stores
was exemplified by Ralph's Grocery Company, although there were
others such as Carty Brothers and Alpha Beta Food Markets.
Ralph's, still a large supermarket operator today, started in down-
town Los Angeles in 1872 with one store.13 By 1911 the company
had built a flourishing operation featuring clerk-service and de-
livery. As the city grew, attractive branches were opened in modern,
elaborate buildings. The units recognized the advantages of self-
service and started conversion in 1926. By 1928 delivery was aban-
doned: 74 trucks were auctioned in one day. By 1929 the chain had
16 large, well-developed supermarkets.14
Drive4n markets. The second type of market store was the open-
front, drive-in market that appeared in the Los Angeles area about
1925.15 This type of operation comprised a group of food stores in
is Lucius Flint, "The Los Angeles Super," Chain Store Age, Grocery Execu-
tive Edition, June, 1950, p. j34.
14 Ibid. . 0 .
is Walter Van de Kamp, "An Innovation in Retail Selling," Magazine of Busi-
ness, July, 1929, p. 28.
■*■" Supermarketing
a one-story building located in neighborhood and outlying sections.
Parking was immediately adjacent. Each of the units of the large
market store was individually owned and operated; yet, shoppers
looked on the market as a single entity. Certain of these units met
our current definition of a supermarket. One of the most elaborate
of these drive-ins was Chapman Park Drive-in Market of Los An-
geles. The land and building alone represented an investment of
over $4GQ,000.16
Factors influencing the supermarket innovation in the Los An-
geles area. It is not known definitely whether all these units met
the self-service requirement. But writers in this era were of the
opinion that the following reasons were responsible for this develop-
ment: 17
1. Los Angeles had no elevated, subway, or other good means of
transportation to the central business district. Thus, individuals
were forced to use private motor cars as the chief source of trans-
portation. In 1928 the population of California was 4,556,000.18 Pas-
senger car registrations were 1,799,890; approximately 35 per cent
of the inhabitants had cars.19 This percentage of the population own-
ing cars was substantially higher than the national average.
2. Parking in the central area was limited, and restrictions were
severe. Therefore, secondary or outiying sections developed. These
invariably had some facilities for parking.
3. The wide use of the automobile for shopping prevailed. People
throughout the year were able to circulate more freely. The climate
was favorable for outdoor living and activity.
4. The open-front, drive-in markets did not have to be erected
16 "495 Autos Can Park in This New Drive-in Market," Progressive Grocer
XIII, no. 10, October, 1929, p. 30.
^ 17 These are synopses of the opinions of three authors: Walter Van de Kamp,
' An Innovation in Retail Selling," Magazine of Business, July, 1929, p. 28; S. L.
Brevit, "Drive-In Department Stores Gaining Popularity in the West,"' Sale's
Management, XXX, no. 3, January 17, 1931, p. 118; and H. M. Foster, "Threat
of the Supermarket," Sales Management, XXXII, no. 9, April 20, 1933, p. 436.
18 U.S. Bureau of Census, Statistical Abstract of the United States, 1929 Gov-
ernment Printing Office, Washington, D.C., 1930, p. 7.
" Ibid., p. 387.
Development of the Supermarket 17
as substantially as in colder communities. The required building in-
vestment was less, and therefore business men were more likely to
experiment with a new type of market.
5. Land was plentiful and reasonably priced. This growing terri-
tory spread over a large area and was not subject to central trans-
portation limitations.
6. The people had a pioneer spirit, believed in change, and were
more adaptable to innovations than the inhabitants of the East or
Middle West.
It was surprising to note that none of the literature in this era
prior to 1930 mentioned low price appeal in connection with these
'market stores." These factors indicate that this supermarket de-
velopment was viewed as a regional affair suitable for California
or possibly the Southwest.20
Large Markets in the Southwest
One of the earliest and the largest supermarket operations in the
Southwest was Henke & Pillot of Houston, Texas. This firm had its
origin in 1872.21 By 1900 its downtown store had 50,000 sq ft of
space and operated 13 departments, including its own bakery and
coffee-roasting plant. The store grew to a yearly volume of $5,-
000,000. As Houston spread out and the automobile came of age,
two modern and well-equipped outlying stores featuring large park-
ing lots were added in 1926 and 1928. Some self-service operation
was adopted in the following year, and the concern became a full-
fledged supermarket.22
Other supermarket operators in the Southwest at this time were
J. Weingarten, Incorporated, and the ABC Stores, Incorporated.
Mr. Joe Weingarten, chairman of the board of J. Weingarten, In-
corporated, has stated that his first large market operation which
20 C. B. Larrabee, "Grocery Manufacturers Condemn Supermarket Price
Cutters," Printers Ink, CLXII, no. 9, March 2, 1933, p. 41.
21 Charles N. Bunnell, "Henke & Pillot Supermarket Grew from Houston Pub-
lic Demand," Super Market Merchandising, II, no. 2, February, 1937, p. 3.
22 "Big Volume in 1922," Chain Store Age, Grocery Executive Edition, June,
1950, p. j22.
18 Supermarketing
could be considered a supermarket was started in 1918.23 This store
had both self-service grocery and dairy departments.
ERA OF THE "CHEAPY" SUPERMARKET, 1930 TO 1935
A new type of supermarket developed in 1930. It was a depression
product and was very different in appearance from the attractive
California and Texas markets. Yet this "cheapy," as it was referred
to, still conformed to our definiton, and its development in New
York and New Jersey awakened the country to this retailing inno-
vation.
King Kullen and Big Bear Markets
Michael Cullen, an ex-chain-store executive, opened the first suc-
cessful "cheapy" in August, 1930, in Jamaica, Long Island, New
York.24 By the end of 1932, the King Kullen Markets had increased
to eight outlets. Big Bear, a similar "cheapy" supermarket, followed
King Kullen. In December, 1932, Roy O. Dawson and Robert M.
Otis, together with the American House Grocers, a local wholesaler,
opened the Big Bear in Elizabeth, New Jersey. The location was an
abandoned factory of the Durant Motor Car Company.25
The word "cheapy" was synonymous with price structure and ap-
pearance. The interior had no partitions, crude floors, bare ceilings,
unpainted fixtures, glaring lights, gaudy signs, and merchandise
piled everywhere. The units thrived in low-rent locations on the
fringe of thickly populated sections. Later, other "cheapy" units
were opened in abandoned warehouses, empty department stores,
garages, and factories.
The price structures were even more fantastic when compared
with the existing forms of food merchandising. Their promotional
names (King Kullen, The Price Wrecker; and Big Bear, the Price
Crusher) were in conformity with their price schedules. Compare
23 M. M. Zimmerman, The Super Market (New York: McGraw-Hill Book
Co., Inc., 1955), p. 26.
24 "The Cheapy Thrives," Business Week, no. 179, February 8, 1933, p. 11
25 M. M. Zimmerman, Super Market Spectacular Exponent of Mass Distribu-
tion (New York: Super Market Publishing Co., 1937), p. 25.
Development of the Supermarket 19
the following King Kullen Market prices with those of other
stores: 26
Elsewhere King Kullen
$ 0.09
AU 10-cent drug items $ 0.10
Campbell's tomato soup 0.07 U.U4
U.S. Rubber tires for Fords .... 5.50 «3.78
General Electric vacuum cleaners . . 35.00 11. y4
The greater portion of space in King Kullen Markets was allo-
cated to the grocery, meat, bakery, and dairy departments. The re-
mainder of the space was leased to utensil, produce, paint, hard-
ware, and auto accessory concessionaires. A King Kullen MarketS
required an investment of $30,000, which included $23,000 for mer-f
chandise, $2,500 for grocery equipment, and $4,500 for meat depart- \
ment equipment.27
Two of King Kullen's operating principles were (1) the other de-
partments must all sell merchandise at reduced prices, and (2) the
income from the concessions should pay the rent of the entire estab-
lishment.28
During this time Big Bear operated only the grocery department,
which occupied 30 per cent of the 50,000-sq ft floor space.29 It leased
concessions for meat, produce, dairy, bakery, candy, tobacco, drugs,
luncheonette, and paints. The concessionaires were charged 5.13 per
cent on their gross sales in lieu of rent and other overhead expenses.
The Big Bear made a substantial profit on the leased departments.
The markets that mushroomed following King Kullen and Big
Bear were generally of the same "cheapy ' type. Many of these early
supers-The Whale, Giant Tiger, Big Chief, Little Bear-were
strange stores, frequently referred to as monstrosities because of
their method of operation, location, appearance, and type of struc-
ture occupied.30 The King Kullen markets in modified form are still
in operation.
26 "The Cheapy Thrives," op. cit.
27 Zimmerman, The Super Market, op. cit., p. 32.
28 Zimmerman, Super Market Spectacular Exponent of Mass Distribution, op.
cit., p. 10.
30 Carl W. Dipman, "Merchandise Trend in Food Trade, Journal of Market-
ing, III, no. 3, January, 1939, p. 269.
20 Supermarketing
Factors Influencing the Development
of the "Cheapy" Supermarket in the East
The innovation of the "cheapy" supermarket in the East was at-
tributed to the fact that low income and unemployment made low
price of paramount importance in the early 1930's.31 The super-
market was a lower-cost type of operation than the existing food
stores. It passed on to the consumer some of its savings, in the form
of lower prices.
Income and employment statistics. The year 1932 was a depres-
sion year. Statistics in Table 2-1 indicate that the number of em-
TABLE 2-1 *
National Income and Employment in the
United States for the Years 1929 to 1936.
National income Number of
Year (in billions) gainfully employed
1929
1930
1931
1932
1933
1934
1935
1936
$83.3
35,563,000
68.9
33,122,000
54.3
29,715,000
40.0
26,222,000
42.5
26,133,000
50.3
28,402,000
55.9
29,725,000
65.1
31,858,000
* U.S. Bureau of the Census, Statistical Abstract of the United States, Gov-
ernment Printing Office, Washington, D.C., 1940, p. 315.
ployed persons dropped 9,341,000 between 1929 and 1932, or by 27
per cent. Unemployment stood at an all-time twentieth century high
of 12,300,000 persons.32 Wages were sharply cut; many of the work-
ing population were on a part-time basis. The national income
dropped from $83.3 billion in 1929 to a low of $40.0 billion in 1932.
31Larrabee, op. cit.
32 Bureau of Labor Statistics, Monthly Labor Review, Vol. 35, no. 1, Govern-
ment Printing Office, Washington, D.C., 1933, p. 140.
Development of the Supermarket 21
The country as a whole was "dissaving"— living on past capital ac-
cumulation. This was the economic setting for the "cheapy" super-
market.
Early price policies of supermarkets. Low price was the basic
appeal of the "cheapy" supermarket as it invaded the food store
field.33 Everything about the market had an air of cheapness. Na-
tionally advertised brands were placed on sale at ridiculously low
prices. Loss leaders were common. Many of the customers drove as
far as 50 miles to the Big Bear.34
King Kullen's pricing format 35 was to sell
300 items at cost
200 items at 5% above cost
300 items at 15% above cost
300 items at 20% above cost
The appeal of low price was nothing new.36 Chains had used it
successfully for years and generally undersold the independents.37
But the supers "stole the thunder" from the chains and were able
invariably to quote lower prices than the economy stores or inde-
pendents.38
Charles F. Phillips cited that on June 20, 1935, he checked the
prices on 34 well-known branded items in the Big Bear and in a
chain store. The chain store prices for these items averaged 12.8
per cent in excess of those of Big Bear.39 A study of advertised staple
merchandise prices made by M. M. Zimmerman in 16 cities through-
out the country in 1935 found that the supers undersold the chains
on comparable products from 4.8 to 22.9 per cent.40
33 Zimmerman, The Supermarket Spectacular Exponent of Mass Distribution,
op. cit., p. 10.
34 Ibid., p. 11.
35 Zimmerman, The Super Market, op. cit., p. 33.
36 Charles F. Phillips, "The Supermarket," Harvard Business Review, XVI,
no. 2, Winter, 1938, p. 192.
37 Federal Trade Commission, Chain Stores, Final Report on the Chain Store
Investigation, submitted to 74th Congress, 1st session, Senate, Document 4,
Government Printing Office, Washington, D.C., Dec. 14, 1934, p. 67.
38 Phillips, op. cit., p. 196.
39 Ibid., p. 198.
40 Zimmerman, The Supermarket Spectacular Exponent of Mass Distribution,
op. cit., p. 53.
22 Supermarketing
With regard to their loss-leader policies, Phillips stated:
There is no doubt but that many supermarkets have been large users I
of loss leaders in the sense that many items have been sold at prices only
slightly above their actual cost to the operator. This practice, of course,
gives the supermarket the appearance of being a low price institution. At
the same time it is evident that much of the cry against this type of opera-
tion for the use of loss leaders is not valid because many supermarkets are
in a position to quote prices below those of their competitors primarily
because of their low cost of operations, but also in some degree because
of their buying practices.41
Comparative margins, expenses, and profits of independents,
chains, and early supers. Prior to the development of the super-
market industry in the 1930's, the retail grocery distribution industry
had its battle lines drawn between chains and independents. The
operating costs of independents in the Louisville area in the late
1920's are indicated in Table 2-2.
TABLE 2-2 *
Profit and Loss Statement for the Average Grocery Store in the
Louisville Survey as a Percentage of Sales for the Year 1929.
Sales 100.00
Cost of sales 74.19
Gross margin 25.81
Expenses
Miscellaneous .... 2.53
Owners' salary .... 4.01
Other salaries .... 6.31
Rent 98
Utilities 1.23
Delivery 2.77
Advertising 31
Insurance 15 18.29
Net profit 7.52
* U.S. Department of Commerce, Distribution Cost Studies Number 1,
Louisville Grocery Survey, Part IllA, Government Printing Office, Washington,
D.C., 1932, pp. 15-23.
41 Phillips, op. cit.
Development of the Supermarket 23
Other studies of independent store operations showed gross mar-
gins to be closer to 20 per cent and profits varying from 1.6 to 2.6
per cent of sales, depending upon the type of operation.42
The Great Atlantic and Pacific Tea Company for the year 1929
operated 15,150 smaller-type economy stores, with the average
weekly sales of $1,317 per store. A breakdown of these operations
for 1929, 1933, and 1935 is shown in Table 2-3. The gross margin
, Table 2-3 *
Condensed Profit and Loss Statement of the Retail Store
Operation of the Great A & P Tea Company as a
Percentage of Sales for the Years 1929 to 1935.
1929 1933 1935
Sales 100.00 100.00 100.00
Cost of sales 81.64 78.10 80.50
Gross margin 18.36 21.90 19.50
Total operating expenses . . 15.52 19.08 17.56
Net profit 2.84 2u82 1-94
* United States v. The Great A ir P Tea Company, U.S. Circuit Court of
Appeals, 7th district, Docket 9221, Records & Briefs, Vol. II, p. 162.
for chain stores as a group for 1929 was 18.99 per cent, and for inde-
pendents, 23.01 per cent of sales.43 These statistics, published later,
support Professor Schmalz's contention that, generally, the chains
were in a position to undersell the independent grocer at that time.
When the "cheapy" supermarket entered the field in the depres-
sion years, it operated at even a lower gross margin than the chain.
The operating statement of the Big Bear super in Elizabeth, New
Jersey, for 1933 is shown in Table 2-4.
Big Bear earned a substantial profit from concessions and was in
a position to operate its grocery department on a 12 per cent gross.
42 A series of studies made in the 1920's were quoted by Carl N. Schmalz,
"Independent Stores vs. Chains in the Grocery Field," Harvard Business Re-
view, IX, no. 4, July, 1931, p. 431.
43 Federal Trade Commission, Chain Stores, op. cit.
24 Supermarketing \
TABLE 2-4 *
Operating Statement of the Big Bear, Elizabeth, New Jersey,
for the Year 1933.
%
Dollar of sales
Grocery department sales .... $2,188,403 100 00
Cost of sales 1,925,795 87^9
Gross profit $ 262,608 12.01
Expenses
Rent $15,516 .71
Payroll 79,545 3.64
Light and heat .... 7,881 .35
Advertising 28,974 1.32
Handling 20,157 .93
Administration .... 11,248 .51
Clerical 6,915 .32
Insurance 3,523 .16
Miscellaneous .... 7,462 .34
Taxes 1,094 .05
Depreciation .... 219 182,534 .01 8.34
Net profit from
grocery operators $ 80,074 3.67
Rental from concessions .... 86,434
Net profit $166,508
* M. M. Zimmerman, The Supermarket Spectacular Exponent of Mass Dis-
tribution (New York: Super Market Publishing Company, 1937), p. 14.
Furthermore, the accounting system did not adequately show the
operating profit because all rental and light for the store was charged
to Big Bear grocery department even though it occupied only 30
per cent of the space.
Similarly, King Kullen stores made a gross profit of 9 per cent on
grocery and fruit and vegetables and a net profit of 2V6 per cent!
Their net profit on meat sales was 3 per cent. These remarkable op-
erating results and profits were the result of the innovation of the
"cheapy" supermarket.
During the early 1930's other mushrooming supermarkets main-
tained an operating advantage over the chain economy stores and
Development of the Supermarket 25
the small independents. Gross margins varied from 10 to 14 per cent
of sales.44 John Hartford, president of the A & P, reported that super-
market competitors in Detroit during this period operated on a 12.5
per cent gross and earned a 2.5 per cent net.45 He said that the
established A & P aim was to operate at a 12 per cent gross and 2
per cent net.46
The statistics on supermarket operation in this era indicate that
it was extremely difficult for the conventional A & P economy store
and the average independent combination market to compete with
supers.
PERIOD OF EXPERIMENTAL GROWTH AND
DEVELOPMENT, 1935 TO 1946
The markets that mushroomed following King Kullen and Big
Bear were generally of the same "cheapy" variety. This type of
store, however, rapidly lost its appeal when more attractive super-
markets were opened, starting in 1935.47 By this time the principle of
the supermarket operation had been proved sound. National income
and employment had risen; new capital began to be attracted to the
industry. "Traded up" supermarkets began to multiply in superior
locations. Larger investments in equipment and buildings followed
and resulted in improved external and internal appearances of the
stores, which began to take on the semblance of supermarkets as we
know them today.
Statistics on supermarkets kept yearly, beginning in 1936, are re-
corded in Table 1-2 and indicate the number of supers and their vol-
ume increase every year thereafter. Such chains as A & P, Kroger,
First National Stores, and American Stores opened experimental
supermarket units at this time.48 But it was not until 1937, that the
44 Phillips, op. cit., p. 192.
45 United States v. The Great A 6- P Tea Company, U.S. Circuit Court of
Appeals, 7th district, Docket 9221, Records & Briefs, Vol. II, p. 194.
46 Ibid., p. 194.
47 Carl W. Dipman, "Merchandise Trend in Food Trade," Journal of Market-
ing, III, no. 3, January, 1939, p. 269.
48 M. M. Zimmerman, "The Supermarket and the Changing Retail Structure,"
Journal of Marketing, VI, no. 2, April, 1941, p. 403.
26 Supermarketing
TABLE 2-5 *
Operating Statement of an Average Independent Combination
Market as a Percentage of Sales for the Year 1935.
Sales 100.0
Cost of sales 81.7
Gross margin 18.3
Expenses
Utilities 8
Advertising 6
Rent 1.4
Wages 5.4
Owner's 4.7
Taxes 4
Other SA 16/7
Net profit 1.6
* Standard Ratios for Retailing (New York: Dun & Bradstreet, Inc., 1936),
p. 8.
industry leader, the A & P, decided to make the supermarket the
next step in its development.49 Some of the first chain supers were
opened under different names; for example, the Kroger Company
operated stores in Cincinnati under the name "Pay'n Takit." The
increase in the number of supermarkets in the late 1930's was due
largely to the switch of chains to supers ( see Table 1-2 ) . From 1936
to 1938 the number of supermarkets skyrocketed from 1,200 to 4,982.
Statistics on the number of supers for the industry leader (A & P)
are given in Table 2-6; they indicate the rapid shift to supermarket
operation. In many urban areas the most strategic locations for
supermarkets already were well developed with such outlets.50
The first supermarket convention in 1937 gave the industry a de-
gree of unity. At that time the industry's trade association, Super
Market Institute, was founded. The Institute, which has lent or-
ganization to the industry and has furnished the widely scattered
49 United States v. The Great A & P Tea Company, op. cit., p. 192.
50 William Applebaum, "Adjustment of Retailing to 1941 Conditions," Journal
of Marketing, V, no. 4, April, 1941, p. 438.
Development of the Supermarket 27
TABLE 2-6 *
Number of A & P Supermarkets and Small Economy Stores
for the Years 1936 to 1943.
Number of Number of small
Year supers economy stores
1936 20 14,426
1937 282 12,776
1938 771 9,900
1939 1,119 7,902
1940 1,396 5,677
1941 1,552 4,490
1942 1,633 4,188
1943 1,646 4,105
* United States v. The Great A ir P Tea Company, U.S. Circuit Court of
Appeals, 7th district, Docket 9221, Records and Briefs, Vol. I, p. 323.
members a common bond, has grown from 32 pioneer members to
the point where it currently embraces over 744 companies operat-
ing 11,388 outlets.51 In addition to sponsoring the annual meetings
at which current major industry problems are discussed, the Super
Market Institute fosters educational activities, establishes ethical
business practices, promotes research activities, and serves as a
clearing house for information. More recently adopted activities
include the intra-industry figure exchange and the executive train-
ing program. Credit also must be given to M. M. Zimmerman for
the development and guidance of this industry, especially in the
formative years. In 1936 he founded the publication, Super Market
Merchandising, which has been a major source of information for
the supermarket operators.
The years 1941 and early 1942 showed one of the largest increases
in the number of supers. The number of units increased by 2,000.
Many chains and independents displayed feverish activity, appar-
ently in an attempt to beat the impending building restriction that
51 The Super Market Industry Speaks— 1959 (Chicago: Super Market Insti-
tute), p. 15.
28 Supermarketing
resulted from World War II.52 During the ensuing war years, the
industry showed little or no expansion. This was accounted for by
building material shortages, lack of adequate help, food rationing,
price controls, rationing which limited the use of the automobile,
desire of people to know their grocers more intimately so as to ob-
tain advantages in food purchasing, reduced significance of price
as a result of swollen consumer incomes, and food shortages.53
Nevertheless the supers survived this era, partly through the in-
creased employment of women, the addition of nonfood lines, the J
maintenance of as large an inventory of national brands as possible,
and self-service expansion.54
Prior to World War II supermarkets as a whole concentrated
mainly on the sale of foods. During the war the supers began to fea-
ture more nonfood lines. The success of this policy led to the addi-
tion of more nonfood departments after the war.55
POSTWAR PERIOD OF MODERN SUPERMARKET
EXPANSION
The industry again experienced renewed impetus in 1946. The
population increase and outward push from the center of cities, plus
the building of new homes in the suburbs, offered new location op-
portunities. Satisfactory profit margins continued to make this a
mecca for expansion. Furthermore the industry was able to obtain
capital. Many of the firms which less than 15 years earlier were small
operations or nonexistent entered the capital markets by publicly
selling securities in order to obtain funds for expansion. Many of
the independent food retailers realized they could not compete with
this new method of merchandising and converted their stores into
supermarkets. In this they were aided by voluntary chains and alert
52 Carl W. Dipman, "Changes in Food Distribution," Journal of Marketing,
VI, no. 4, April, 1942, p. 48.
53 M. M. Zimmerman, "Super Market Sales & Profit Trends 1941-43," Journal
of Marketing, X, no. 2, October, 1944, p. 162.
54 M. M. Zimmerman, "Tomorrow's Super Market," Journal of Marketing, X,
no. 4, April, 1946, p. 384.
55 M. M. Zimmerman, Super Market— Its Growth and Future (New York:
Super Marketing Merchandising Publishing Co., 1948), p. 4.
Development of the Supermarket 29
wholesalers who helped them to streamline their methods of opera-
tion. New stores were built with greater floor space and parking
facilities. Many stores were remodeled. More elaborate interiors
and exteriors became the vogue, with services such as music and air
conditioning addea^The statistics in Table 1-2 indicate an increase
of 213 per cenfTifthe number of supers from 1945 to 1958 and a
rise in sales volume of 637 per cent for the same period. By 1958
the number of supermarkets had reached 20,413 units.
Other features that aided this tremendous postwar expansion in-
cluded the further shift of local, regional, and national chains from
small to large store operation. In addition, the increased promotion
and ballyhoo techniques of supermarket operators to increase store
traffic made the suburban shopping center and the supermarket a
sociological mecca for the American family. Finally, the constant
pressure to reinvest earnings into profitable merchandising opera-
tions aided the expansion movement.
One of the most recent trends in the postwar era is the increased
emphasis on horizontal integration through acquisition on the part
of the larger concerns. Examples of this are the recent foragings of
the National Tea Company and the ACF-Wrigley Stores, Incorpo-
rated. The keynote seems to be "acquire or expire." More and more
the emphasis is not on "big business" but on "bigger business."
SUMMARY
The first supers were a relatively few Piggly Wiggly stores. These were
followed by the California supers and drive-in markets, which appeared
to be a product of primarily local forces. Then came a new supermarket,
the "cheapy," which flourished in the depression years of the 1930's and
which made low price its basic appeal. This was followed by the policy
of "trading-up" the stores. The national food chains joined the movement
after 1936 and gave it impetus. The World War II period saw changes
in policies but relatively no change in number of markets. The postwar
period was one of vast expansion in number of units, size of stores, serv-
ices, and dollar volume. The industry has become one of bigger and
bigger business.
EXTERNAL FACTORS
THAT INFLUENCED THE
GROWTH OF THE
SUPERMARKET INDUSTRY
INTRODUCTION
The development of the supermarket, including the factors that
influenced its innovation, was discussed in the preceding chapter.
It was shown that the early supers, with the exception of California
and the Southwest, were largely of the ' cheapy" variety. But from
1935 on, the supermarket industry continued to gain new members
at a remarkable rate and began to improve the appearance, equip-
ment and location of its stores.1
This chapter and the subsequent four analyze the factors that
aided this remarkable growth. For expedience these are broken
down into external and internal considerations. The former are ex-
amined in this chapter and include:
1. Changes in personal disposable income and personal consump-
tion expenditures
2. Shifts in upper income shares
3. Changes in expenditures in food stores
4. Changes in the pattern of food consumption
1 Charles F. Phillips, "The Supermarket," Harvard Business Review, XVI, no.
2, Winter, 1938, p. 192.
30
External Factors 31
5. Technological developments and their adoption
6. Population growth and shift to the suburbs
7. Retail trend toward decentralization
8. Shifts in consumer buying habits (including one-stop shopping
and scrambled merchandise) 2
9. Additional external factors
Still other external influences were present in the economy such
as industrial decentralization, concentration of power among food
manufacturers and higher literacy; but the above listed factors ap-
peared to be the most pertinent to the problem.
CHANGES IN PERSONAL DISPOSABLE INCOME
AND PERSONAL CONSUMPTION EXPENDITURES
As previously indicated, the national income of the United States
suffered a substantial drop from $83 billion in 1929 to $40 billion in
1932.3 Employment decreased from 35,563,000 in 1929 to 26,222,000
in 1932.4 It was at this time that the "cheapy" supermarket started
its expansion-offering "food for less." But the "cheapy" depression
product was short-lived and soon was replaced by the more elab-
orately equipped and housed super.
From 1935 to date, the total and the per capita disposable per-
sonal income and personal consumption expenditures increased sub-
stantially. These statistics are shown in Table 3-1 together with the
cost of living index which also rose in this interval, although by a
lesser amount than the per capita income and expenditures. The
trend thus has been for each person to have more income to spend
and to need relatively less of this larger income for basic living pur-
poses. The large personal consumption expenditures indicate that
2 The term scrambled merchandise was used by Malcolm P. McNair to indi-
cate the merchandising of a commodity in retail stores in which the product
was basically foreign. This discussion is found in an article by Malcolm P. Mc-
Nair, "Trends in Large-Scale Retailing," Harvard Business Review, X, no. 1,
Fall, 1932, p. 31.
3 These statistics are contained in Table 2-1.
* Ibid.
32
Supermarketing
TABLE 3-1
Total Disposable Personal Income, Total and Per Capita
Personal Consumption Expenditure, and the Cost of
Living Index in the United States for
the Years 1935 to 1958.
Disposable
Personal
Per capita
personal
consumption
personal
Cost of
income *
expenditures f
consumption
living
Year
(billions)
(billions)
expenditure \
index §
1935
$ 58.0
$ 56.2
$ 443
58.7
1936
66.1
62.5
486
59.3
1937
71.1
67.1
520
61.4
1938
65.5
64.5
496
60.3
1939
70.2
67.5
508
59.4
1940
75.7
72.1
545
59.9
1941
92.0
82.3
616
62.9
1942
116.7
91.2
673
69.7
1943
132.4
102.2
745
74.0
1944
147.0
116.6
841
75.2
1945
151.1
123.1
879
76.9
1946
158.9
146.9
960
83.4
1947
169.5
165.6
1,150
95.5
1948
188.4
177.9
1,200
102.8
1949
186.4
180.6
1,210
101.8
1950
204.3
194.0
1,280
102.8
1951
225.0
208.3
1,358
111.0
1952
237.4
218.3
1,401
113.5
1953
250.2
230.5
1,456
114.4
1954
254.4
236.5
1,467
114.8
1955
274.4
254.0
1,546
114.5
1956
290.4
269.4
1,602
116.2
1957
305.1
284.4
1,661
120.2
1958
311.6
290.6
1,669
123.5
* Statistics for 1935 to 1950, U.S. Bureau of the Census, 1951 Supplement,
Survey of Current Business, Government Printing Office, Washington, D.C.,
1952, p. 8. Statistics for 1951 to 1956, U.S. Bureau of the Census, Statistical
Abstract of the U.S., Government Printing Office, Washington, D.C., 1959, p.
305.
f Ibid.
t This is the Bureau of Labor Statistics Cost of Living Index in which sta-
tistics for the years 1947-49 equal 100. U.S. Bureau of the Census, Statistical
Abstract of the U.S., 1959, op. cit., p. 338.
§ Calculated by dividing Personal Consumption Expenditure by total popu-
lation data contained in the Statistical Abstract of the U.S., op. cit., p. 5.
External Factors 33
people did spend liberally in this era; and as shown later in this
chapter, food stores did capture a greater portion of the consumer
dollar through the sale of "luxury" food items and newly added
nonfood lines.
SHIFTS IN UPPER INCOME SHARES
A parallel to the above is the study by Simon Kuznets on the
upper income shares of the national income.5 During the interwar
decades (1919-1938) before income taxes, the top 5 per cent of
the population had 30 per cent of the income; during 1947-1948,
they had only 18 per cent of the income.
Up to 1938 the income percentage of the top 5 per cent varied
only by 4.7 percentage points in either direction from the 1919-1938
average of 30 per cent; 6 but from 1938 on, the upper-share income
declined steadily. This decline was unparalleled in the financial rec-
ords for its magnitude and persistence.
The most recent statistics on the distribution of personal income
indicate that the basic trend in upper-share income has continued.
Between 1946 and 1955, the top 20 per cent of the income units
dropped from 46.1 per cent to 44.6 per cent of total personal in-
come.7 The biggest gains were registered by the middle income
groups.
There were various causes for this shift. The most important were
(1) the reduction of unemployment, (2) the growth of unions, (3)
the tax structures, and (4) the marked increase in total income that
flowed to the lower income groups, particularly the farmers and
wage earners.8 This increase in income that precipitated to the lower
income groups was more likely to be spent on food as well as other
purchases.
5 Simon Kuznets, Shares of Upper Income Groups in Income and Savings
(New York: National Bureau of Economic Research, Inc., 1953).
6 Ibid., p. XXXV.
7 U.S. Department of Commerce, Survey of Current Business, Government
Printing Office, Washington, D.C., July, 1958, p. 13.
8 Kuznets, op. cit.
34 Supermarketing
CHANGES IN THE PATTERN OF FOOD CONSUMPTION
Shifts in the dietary habits of the American people significantly
altered the pattern of food store sales from 1929 to 1954. The trend
in consumption was away from less expensive bulk foods such as
potatoes and grain products and toward the more costly leafy green
vegetables, fresh fruits, and meat and dairy products as noted in
Table 3-2. On a per capita basis the consumption of potatoes in
1954 was only 106 lb as compared with 169 lb in 1929. The con-
sumption of dairy products in the same period rose from 379 lb to
417 lb per person; and meat, poultry, and seafood increased on a
per capita basis from 134 to 169 lb. These changes in food consump-
tion habits benefited in general the food store industry and in par-
ticular the supermarket. The latter increased its volume in the above
lines and realized larger margins.9
TABLE 3-2 *
* Bureau of Agricultural Economics, U.S. Department of Agriculture, Con-
sumption of Food in the U.S., Agriculture Handbook No. 62, Government Print-
ing Office, Washington, D.C., October, 1955, p. 43.
9 Herman L. Myers and Forrest Scott, The Rise of the Super Market, U.S.
Department of Agriculture, Bureau of Agricultural Economics, MTS-103, Gov-
ernment Printing Office, Washington, D.C., December, 1951, p. 10.
Yearly Consumption of Food Products
per Capita,
Retail-Weight Equivalent
(in pounds)
by Major
Food Groups for the Years 1929,
1948,
and 1954.
Product
1929
1948
1954
Dairy products
379
412
417
Eggs
40
47
52
Meat, fish, and poultry
134
151
169
Potatoes and sweet potatoes
169
116
106
Leafy green and yellow
vegetables
102
111
112
Citrus fruit and tomatoes
79
116
108
Flour and cereal products
234
169
156
Ice cream
11
18
17
External Factors
35
CHANGES IN EXPENDITURES IN FOOD STORES
Statistics in Table 3-3 indicate that food store sales, both on a
total and a per capita basis, rose substantially from 1935 to 1958.
This gain has been attributed not only to a rise in prices but also to
an increase in total and per capita quantities of products sold in
food stores.10
Furthermore, the food store group not only gained absolutely in
dollar sales but captured a greater portion of the consumer's dollar.
The statistics in Table 3-4 show that 15 cents out of every dollar of
personal consumption expenditure went to the food store in 1935.
The trend from 1935 to 1958 has been upward, and in 1958, 17.31
cents out of every consumer dollar spent went to the food store
group.
TECHNOLOGICAL DEVELOPMENTS AND
THEIR ADOPTION
Technological developments such as the automobile and the re-
frigerator, and their wide use in daily living, enabled a change to
take place in the food store sales pattern. These developments in-
fluenced changes in buying habits, which in turn benefited certain
types of food stores (particularly the supermart) to the detriment
of other kinds of food store outlets. Of the many developments that
occurred, three are selected for study as logically being the most
important:
1. The automobile
2. Refrigeration
3. New food manufacturing and processing techniques
io The Retail Food Price Index of the Bureau of Labor Statistics ( recorded
in Table 3-3) increased from 49.7 in 1935 to 120.3 in 1958. However, this rise
was relatively less than the total food store sales and the per capita food store
sales.
36 Supermarketing
TABLE 3-3
Total Food Store Sales, Per Capita Food Store Sales,
and Retail Food Price Index for the Years 1935 to 1958.
Year
Food store
sales
(in billions) *
Per capita
food store
sales f
Retail food
price index $
1935
1936
1937
$ 8.4
9.0
9.7
$ 66
72
75
49.7
50.1
52.1
1938
1939
1940
9.5
10.2
10.9
73
78
83
48.4
47.1
47.8
1941
1942
1943
12.6
15.8
17.5
95
117
128
52.2
61.3
68.3
1944
1945
1946
19.0
19.8
24.2
138
141
171
67.4
68.9
79.0
1947
1948
1949
28.4
31.0
31.0
197
210
208
95.9
104.1
100.0
1950
1951
1952
32.8
37.6
39.8
215
244
254
101.2
112.6
114.6
1953
1954
1955
40.8
41.6
42.0
255
257
264
112.8
112.6
110.9
1956
1957
1958
44.2
47.8
50.3
274
280
289
111.7
115.4
120.3
* These statistics do not contain sales of the country general store. U.S. Bu-
reau of the Census, Statistical Abstract of the U.S., Government Printing Of-
fice, Washington, D.C., 1959, p. 833.
f Calculated by dividing food store sales by the total population statistics con-
tained in the Statistical Abstract of the U.S., 1959, p. 5.
t Ibid., p. 328.
External Factors 37
TABLE 3-4 *
Percentage of Personal Income Expenditure
Spent in Food Stores.
Year %
1935 15.00
1940 15.18
1945 16.15
1950 16.75
1955 17.17
1956 17.29
1957 16.83
1958 17.31
* Calculated by dividing total food store sales ( data contained in Table 3-3 )
by total personal consumption expenditures (statistics found in Table 3-1).
Automobile
Statistics on car registrations are shown in Table 3-5. From 1915
to 1920, motor vehicle registration increased 308 per cent. From 1920
to 1930 an additional 190 per cent gain was experienced. By 1930
cars in operation totaled 26.5 million. These substantial increases
on a national basis occurred when the supermarket, except in the
Los Angeles area, was a rarity. In California there was early accept-
ance and wide use of the automobile for shopping.
The "cheapy" supermarket of the early 1930's had "low prices"
as the basic appeal, and the significance of the automobile was to
furnish transportation to the supers and to haul away the food bar-
gains, since the units in general were located in fringe areas poorly
serviced by public transportation.
From 1930 to 1950 car registrations increased from 26,532,000 to
48,567,000. By 1958 registrations rose to 68,299,000 cars. These sta-
tistics are contained in Table 3-5. This substantial gain occurred
concomitantly in the era of vast supermarket growth. Not only did
car registration increase, but cars were distributed widely among
the population. They were used more in daily living, driven more
by women, and used actually for shopping. It was in this manner
38 Supermarketing
that the automobile and its use can be said to have played an in-
tegral part in the supermarket development.
Refrigeration
A second technological development that influenced the pattern
of food store sales was the principle of refrigeration. In Table 3-6
TABLE 3-5
Motor Vehicle Registrations (in thousands) in the
United States for the Years 1915 to 1958.
1915 2,491
1920 9,239
1925 19,941
1930 26,532
1935 . . 32,035
1940 30,638
1945 44,140
1950 48,567
1955 62,020
1956 64,437
1957 67,131
1958 68,299
* U.S. Bureau of Census, Statistical Abstract of the U.S., Government Print-
ing Office, Washington, D.C., 1959, p. 559.
are statistics on manufacturers' unit sales of refrigerators. The adop-
tion for home use started in the late 1920's and continued through
the 1930's, although unit sales varied in some years because of eco-
nomic conditions.
The major influence of the refrigerator on buying habits was to
reduce the frequency of shopping trips. The refrigerators enabled
the storage of foods, particularly meat, for longer periods of time
than the old conventional ice box.11 Following World War II, a
variation of the refrigeration principle— the deep freeze or home
freezer— enabled storage of foods for even longer periods. The sales
of home freezers, which totaled 8,983,800 units through 1956, along
11 A. A. Brown, "Competition in Refrigeration Demands the Retelling of the
Food Protection Story," Edison Electric Institute, April, 1937, p. 123.
External Factors 39
TABLE 3-6
Manufacturers' Sales by Number of Units of Refrigerators and
Home Freezers for the Years 1926 to 1956.
Year
Refrigerators
Home Freezers
1926*
1927
1928
1929
1930
205,000
375,000
535,000
778,000
791,000
1931
1932
1933
1934 f
1935
906,000
798,000
1,016,000
1,283,000
1,568,000
1936
1937
1938
1939
1940
1,996,000
2,310,000
1,254,000
1,900,000
2,700,000
1941
1942 f
1945
1946
1947$
3,500,000
520,000
263,860
2,100,000
3,400,000
( None recorded
before 1946)
210,300
607,000
1948
1949
1950
1951
1952
4,766,000
4,450,000
6,020,000
3,731,000
3,196,000
690,000
485,000
884,000
1,032,500
1,118,200
1953 §
1954
1955
1956
3,287,000
3,135,000
3,820,000
3,382,000
1,049,800
943,000
1,045,000
919,000
* Sales from 1926 to 1934 are found in Electrical Merchandising, Vol. 55, no.
1, January, 1936, p. 3.
f Sales from 1934 to 1945 are found in Electrical Merchandising, Vol. 76, no.
1, January, 1946, p. 37.
$ Sales from 1947 to 1952 are found in Electrical Merchandising, Vol. 85, no.
1, January, 1953, p. 75.
§ Sales from 1953 to 1956 are found in Electrical Merchandising, Vol. 90, no.
1 January, 1957, p. 102.
\ None were manufactured during the years 1943 and 1944.
40 Supermarketing
with the growing popularity of refrigerators with frozen food com- 1|
partments also influenced the pattern of frozen food sales.
In addition to reducing the frequency of shopping trips, refrigera-
tion brought about still another and more revolutionary change in
the food pattern. It made possible the development of a myriad of
new frozen food products which gained popularity. The supermar-
kets took greater advantage of this new food trend than the small
food store by providing the space and the large capital for the re-
frigerated units required to store and display these new foods.12
New Food Manufacturing and Processing Techniques
Manufacturers developed products that made it more convenient
to prepare and serve foods. For example:
1. Baby foods, which got their start in 1925, built up to a $251,-
000,000 retail volume in 1958.13
2. The preservation of foods by quick freezing was pioneered by
Clarence Birdseye in 1925. 14 The first line was introduced in the
food stores by General Foods in 1930. Frozen foods, which not only
included the conventional fruit juices and vegetables but also com-
plete dinners, attained an estimated retail volume of $2,331 billion
in 1958.15 Dehydrated food processing currently looks promising.
3. New, instant-type desserts, ready cake mixes, and beverages
(to name but a few) were developed. These new products generally
were more expensive than the older types of products which they
replaced.16 The distribution of gourmet specialties by General Foods
is a recent innovation.
4. Packaging changes have resulted that not only facilitate self-
service selling but also require additional display space. One ex-
ample is the growing use of multiple packaging that requires room I
12 Edwin T. Gibson, "Frozen Foods in the Super Market," Super Market Mer-
chandising, XV, no. 6, June, 1950, p. 72.
^What the Public Spends for Grocery Store Products (New York: Food
Topics Publishing Co., 1959), p. 3.
14 Frozen Food Industry (Philadelphia: Curtis Publishing Co., 1952), p. 4.
15 What the Public Spends for Grocery Store Products, op. cit.
16 "Stocks Have Trebled," Progressive Grocer, XXXI, no. 10, October, 1952,
p. 41.
External Factors 41
for display in order to differentiate the product from the 5,710 other
items in supermarkets.17 Another example is the innovation of larger
packages for soap and cleansers, which require additional space for
proper merchandising.
The many new items and innovations required the food store to
carry larger inventories, to provide more display space, and to have
sizable investments in refrigerated cases. These new products,
easily sold by self-service techniques, in the main benefited the
supermarket as compared to the small grocer who lacked the needed
facilities.18
POPULATION GROWTH AND SHIFT TO THE SUBURBS
The population of the United States increased during the years
1930 to 1950 from 123,070,000 to 151,240,000.19 By January, 1958, the
number of inhabitants soared to 171,970,000.2° This rise of 23.4 per
cent was associated with a rising food store volume. However, loca-
tional shifts in the population appeared to affect more significantly
the shifting of the pattern of food store sales than did the increase
in the number of inhabitants.
Data on 140 central cities in the United States, which in 1940 had
50,000 or more population, are given in Table 3-7. From 1930 to
1940 the percentage increase of population in the central cities was
6.1 per cent, while the areas adjacent rose 16.9 per cent, as calcu-
lated from statistics contained in Table 3-7.
In the period of 1940 to 1950 the number of central cities in-
creased to 168, as noted from the figures in Table 3-8. The central
city population grew 13.9 per cent, but the areas adjacent rose 35.5
per cent. National population from 1940 to 1950 increased from
131,936,000 to 151,240,000, or only 14 per cent. The estimated
17 Frank J. Charvat, "Growth Trend in Multiple Packaging," Advertising
Agency, Vol. 51, no. 17, August 15, 1958, p. 16.
18 "Stocks Have Trebled," Progressive Grocer, op. cit.
19 U.S. Bureau of the Census, Number of Inhabitants, U.S. Summary 1950
Census of Population, Government Printing Office, Washington, D.C., 1952, pp.
1-51.
20 U.S. Bureau of the Census, Current Population Reports, Government Print-
ing Office, Washington, D.C., 1958, p. 1.
42 Supermarketing
TABLE 3-7*
Shift in Population in 140 Central Cities of the
United States with 50,000 Population and Over,
for the Years 1930 and 1940.
% increase
1930 1940 1940 over
Population Population 1930
Central cities 40,343,442 42,796,170 6.1
Outside central
city area f 17,259,423 20,109,603 16.9
* U.S. Bureau of the Census, Sixteenth Census of the U.S., 1940 Population,
Vol. 1, Government Printing Office, Washington, D.C., 1942, p. 61.
f The area "outside the central city" is, by census definition, immediately
adjacent to the city.
changes in population to 1958 indicate a continuation of this trend,
with the inhabitants literally racing to the suburbs to live.
An additional factor of this national shift to suburban living was
the composition of the population.21 The median family income in
1950 for the suburban area was $5,100 against $3,600 for the city
proper. About 75 per cent of the suburban families owned their
homes, as compared with 41 per cent for the city. Approximately 27
per cent of the residents in the suburbs were under 14 years of age,
whereas in the city itself, this age group claimed only 21.4 per cent.
These changes in urban and suburban population were attributed
in part to World War II, to the desire for home ownership, to the
requisite for larger space around homes, to more families, and to
the increase in personal disposable income. The automobile was a
tool in this development, since it helped to provide transportation.
These outlying areas, not so densely populated per square mile as
the cities, required shopping facilities. New secondary shopping
centers mushroomed; some assumed major significance. The extent
to which supermarkets and other forms of retailing took advantage
of these new suburban markets is examined in the next section.
21 "The Lush New Suburban Market," Fortune, XL VIII, no. 5, November,
1953, p. 131.
External Factors 43
TABLE 3-8 *
Shift in Population in 168 Central Cities of the
United States with 50,000 Population
and Over, for the Years 1940 and 1950.
% increase
1940 1950 1950 over
Population Population 1940
Central city 43,391,718 49,412,792 13.9
Outside central
city area 25,887,957 35,087,888 35.5
* U.S. Bureau of the Census, Number of Inhabitants, U.S. Summary, 1950
Census of Population, Government Printing Office, Washington, D.C., pp. 1-69.
RETAIL TREND TOWARD DECENTRALIZATION
The development of outlying shopping sections was an adjunct
to the suburban movement of the population. The supermarket was
part of this movement. While it can be contended that the locating
of supermarkets is a management prerogative and should be in-
cluded in the next chapter under operating practices, the whole
retail movement to the suburbs was pronounced. This forced retail
management generally to open outlets in the suburbs.22 The need for
retail outlets was made greater when manufacturing plants were
given special tax advantage to encourage new factories in outlying
areas.23
In Table 3-9 are statistics on retail sales volume by size of city.
Generally, the period from 1939 to 1954 showed a trend toward a
greater percentage of sales in smaller communities. However, the
movement by large retailers to the suburbs has further gained mo-
mentum 24 Companies participating in shopping centers read like
a "Who's Who of Merchandising/' Many of these outlying shop-
22 "The Changing American Market," Fortune, XL VIII, no. 2, August, 1953,
p. 232.
23 V. B. Smith, "Industry Disperses Plants," Engineer-News, March 27, 1952,
p. 241.
24 "The Changing American Market," op. cit.
44
Supermarketing
TABLE 3-9 *
Retail Trade by City Size for the Years 1954,
1948, and 1939.
Sales (in billions)
Percentage distribution
Size
1954
1948
1939
1954
1948
1939
500,000 and over
$ 35.8
$ 30.3
$10.2
21.1
23.2
24.3
250,000 to 499,999
13.4
9.9
3.9
7.8
7.6
9.4
100,000 to 249,999
15.9
12.5
3.8
9.4
9.6
8.9
50,000 to 99,999
14.5
11.0
3.5
8.5
8.4
8.3
10,000 to 49,999
34.6
26.3
8.0
20.4
20.1
19.1
5,000 to 9,999
12.8
9.7
3.0
7.5
7.4
7.2
2,500 to 4,999
9.9
7.0
2.3
5.8
5.4
5.6
Under 2,500
33.1
24.0
7.3
$42.0
19.5
100.0
18.3
100.0
17.2
100.0
Total
$170.0
$130.7
* Data for 1939 and 1948 from U.S. Bureau of Census, Census of Business,
1948, Retail Trade, Part 11, Vol. II, Government Printing Office, Washington,
D.C., 1952, p. 14. Data for 1954 from U.S. Bureau of Census, Census of Busi-
ness, 1954, Bulletin R-2-2, Government Printing Office, Washington, D.C., 1957,
pp. 2-309.
ping centers located in unincorporated areas in order to obtain low-
cost land and to avoid annoying local ordinances. This phenomenal
shift is reflected in the data contained in Table 3-9. Total retail sales
made in areas of under 2,500 rose from 17.2 per cent of all retail
sales in 1939 to 19.5 per cent of all retail volume by 1954.
Three types of centers have developed.25 The smallest— 5 to 10
acres with a maximum of ten stores and referred to as the neighbor-
hood type— has one dominant store in the group acting as the mag-
net to attract shoppers. This core store frequently has been a large
supermarket. The investment ranges from several hundred thousand
dollars to several million dollars. The second type— the intermediate
community center of 10 to 25 acres with a junior department store
as the focal point— needs a minimum of 5,000 families for its support.
This type of center is reflected by Lincoln Village in the Chicago
suburbs, which required an investment of about $3,000,000. The
third type is a regional center with a minimum of 35 acres and serv-
25 "Shopping Centers," Barrons, XXXVI, no. 32, August 6, 1956, p. 3.
External Factors 45
ing 100,000 persons. Examples of the latter are the $100,000,000 ex-
travaganza of Lakewood Center in Los Angeles, which has a 12,000-
car parking lot, or the new $25,000,000 Roosevelt Field center in
New York, which contains 110 stores and expects to transact an $80,-
000,000 yearly volume.
In 1957, 35 regional centers, 200 intermediate community centers,
and 600 of the neighborhood type of center were opened.26 Shop-
ping centers continue to flourish, but they appear to be losing some
of their momentum. A 1958-59 directory of the large suburban shop-
ping centers lists 1,914 centers with 14,750 tenant stores.27
The decentralization movement was a factor in supermarket de-
velopment.28 The "cheapy" supers were first located in low-rent dis-
tricts adjacent to densely populated areas of New Jersey and New
York. It was considered that a population of 75,000 to 100,000 was
required to support a million-dollar yearly volume market and that
the saturation point of the number of these units would be reached
quickly.29
With the shift to better equipped and housed supers, stores were
opened in a variety of other sections and communities throughout
the country. Many of the new locations were selected to house
larger stores and to provide necessary parking. The changing pat-
tern is shown by the statistics in Table 3-10. In 1940, 28.4 per cent of
the supers were in cities with a population of 500,000 and over, and
50 per cent in cities with an excess of 100,000 inhabitants. Although
the number of supermarkets increased numerically in these large
cities during the next 14 years, there was an over-all trend toward
small-town locations; and the large cities lost relatively in the num-
ber of supers by almost 13 per cent. All classes of communities un-
der 100,000 population gained relatively in this 14-year period. More
than 38 per cent of all supermarkets in 1954 were in towns of less
^Business Week, no. 1499, May 24, 1958, p. 50.
27 Directory of Shopping Centers in the United States and Canada 1958-59
(Chicago: National Research Bureau, Inc., 1959).
28 "Store Locations," Chain Store Age, Grocery Executive Edition, January,
1950, p. 143.
29 Carl Dipman, "Merchandising Trends in the Food Trade with Special Ref-
erence to Supermarkets," Journal of Marketing, III, no. 3, January, 1939, p. 272.
46 Supermarketing
TABLE 3-10 *
Number of Supermarkets in the United States by Size of the Community
for the Years 1940, 1950, and 1954, and the Percentage That
Each Community Is to the Total.
1940
1950
1954
Population
Number
%
Number
%
Number
%
500,000 and over
2,119
28.4
2,854
20.1
3,073
17.8
100,000 to 499,999
1,599
21.4
2,929
20.7
3,441
19.9
25,000 to 99,999
1,647
22.0
3,276
23.5
3,938
22.8
10,000 to 24,999
967
12.9
2,218
15.8
3,025
17.5
5,000 to 9,999
545
7.3
1,289
9.1
1,592
9.2
2,500 to 4,999
352
4.7
784
5.3
1,038
6.0
Under 2,500
244
3.3
814
5.5
1,191
6.8
Total
7,473
100.0
14,164
100.0
17,298
100.0
* Super Markets in the United States (Philadelphia: Curtis Publishing Co.,
1954), p. 7.
than 25,000 inhabitants. These statistics indicate that supermarkets
followed the trend of the population to the outlying areas. The
supermarkets were here at an advantage in that they could erect
facilities suitable to the shopping needs. Moreover, in these outlying
locations, there tended to be less competition from small food stores
than in the older sections where rental f acilities for small food stores
were greater.
SHIFT IN CONSUMER BUYING HABITS, INCLUDING
ONE-STOP SHOPPING AND SCRAMBLED
MERCHANDISING
Certain consumer buying habits underwent a considerable change
after the 1920's. These shifts were associated with the supermarket
development inasmuch as the supers adopted practices in line with
the change in shopping wants.30 Supermarkets were thus in a more
30 The changes in shopping habits occurred concomitantly with the develop-
ment of the supermarket. No attempt is made to determine which preceded the
other. The entire movement was part of a trend toward "simplified selling."
External Factors 47
favorable position than other types of food stores to benefit from
these changes.
Thirty-seven different studies were reviewed to determine changes
in shopping habits that differed from those of the pre-supermarket
era.31 An example is the McCall's Magazine "Consumer Diary
Study," the results of which are found in Table 3-11. The findings
of the various research projects are summarized as follows:
1. There has been a decided increase in one-stop shopping pref-
erence. Women shoppers first go to stores they believe will give
them the best opportunity of making all their purchases. This de-
sire has led to the diversified lines of merchandise handled by
supers.
2. Visits to the food store have become less frequent. The aver-
age seems to be about three times per week. There is a decided in-
crease in the number of people who shop once a week.
3. There has been a substantial increase in the use of the auto-
mobile for shopping.
4. The average expenditure per customer in the stores has in-
creased substantially, more than the rise in price level.
5. Shopping seems concentrated on certain days of the week,
with Friday and Saturday the key days.
6. People tend to travel farther to shop than they did prior to
the supermarket development.
7. While shopping is still done predominantly by women alone,
the increase in number of men shoppers has been substantial. The
general findings indicate men alone, or accompanied by women,
purchase about 40 per cent of the food.
8. Impulse buying has become a significant factor in food shop-
ping. Display techniques and ability of the buyer to wander through
the store have resulted in the purchase of a significant number of
items that the customer had not intended to buy upon entering the
store.
31 A comprehensive file of consumer-shopping studies is contained at the
library of the Super Market Institute. These studies were made by advertising
agencies, private research firms, universities, and the research departments of
corporations, newspapers, and periodicals.
48
Supermarketing
9. Preference for self-service is indicated by answers to surveys
and also by the heavy patronage of self-service food stores.
10. There is a desire for more convenient and attractive shopping.
TABLE 3-U *
Findings from McCalFs Magazine Consumer Diary
Study of Food Purchases Made by 1,090
Families for One Week in the Year 1956.
A. FOOD PURCHASES
MADE BY THE
PANEL:
Number of
Total
families
number of
that purchased
purchases of each
Dollar value
Products purchased
these products
product made
of purchases
Meat, poultry, fish
1,051
4,515
$ 6,066
Produce
1,030
4,211
1,951
Dairy
1,067
7,278
4,530
Frozen foods
653
1,603
974
Baked goods
1,069
4,984
1,723
Grocery items
1,090
23,491
11,378
B. FOOD PURCHASING HABITS:
1. Approximately 86.6 per cent of the food shoppers always use an auto-
mobile, and an additional 1.8 per cent use an automobile for food shopping
only part of the time.
2. Approximately 90.7 per cent of the families do some shopping at super-
markets, and 75.8 per cent shop exclusively at supermarkets.
3. Major reasons for shopping at supermarkets expressed as a percentage
of total responses:
Large selection 49.0%
37.8%
28.7%
22.2%
20.5%
13.9%
Economy ....
Self-service selection
One-stop shopping .
Easy-to-find items .
Freshness ....
4. Two major dislikes are (a) impersonal relationship due to large size of
store, and ( h ) difficulty of finding items because of the size of the store.
* Home Testing Institute, Inc., McC all's Food and Grocery Products Diary
Study (New York: McCall Corp., 1956).
11. Advertising helps women in their search for merchandise.
They examine the newspapers prior to making shopping expeditions.
These changes in buying habits in general have favored the super-
External Factors 49
market industry as compared to other types of food stores.32 Perhaps
the most significant of these changes in shopping in relation to the
growth of supermarkets has been the preference for one-stop shop-
ping.33 This in turn has been one of the reasons that has intensified
competition among different types of retailers in selling the same
product— scrambled merchandising.34 Supermarkets have always
been one of the proponents of scrambled merchandising. Aided by
large customer traffic, supers have added many lines of merchandise
that were foreign to food stores in the 1920's and have turned them
into substantial sources of profit.35
ADDITIONAL EXTERNAL FACTORS THAT
INFLUENCED THE SUPERMARKET DEVELOPMENT
An examination of the literature in this field has disclosed a variety
of additional external factors that had varying degrees of influence
on the supermarket growth. Some of the most important of these
are summarized below.
1. There was a trend following the early 1930's for a greater per-
centage of married women to work outside the home. Generally
they were able to spend this income, or at least part of it, as they
wished. The display techniques of supermarkets and the addition of
nonfood lines have attempted to capture this income.36
2. Manufacturers of food products increased the brand and pack-
age advertising of their merchandise in an effort to presell the cus-
tomers.37
32 The operating practices of supermarkets that enabled them to benefit more
from these buying habit changes than other types of food stores are presented
in Chapters 4 through 7.
33 Here's How We Shop for Our Big Grocery Order (New York: Batten,
Barton, Durstine & Osborne, 1959).
34 Richard Alt, "Competition among Types of Retailers in Selling the Same
Commodity," Journal of Marketing, XIV, no. 3, January, 1948, p. 444.
35 Milton Alexander, "\^here We Stand in Non-Foods Merchandise," Pro-
gressive Grocer, XXXI, no.' 10, October, 1952, p. 197.
36 "Supermarket Revolution in Retailing," Business Week, no. 1189, June 28,
1952, p. 38.
37 John R. Gilman, "Why Package Products Face Super Competition in Super-
markets," Advertising Agency, Vol. 45, no. 6, June, 1952, p. 64.
50 Supermarketing
3. There was a growing trend for manufacturers to identify then-
products in the mind of the consumer as to constant quality and
value. This ready recognition and acceptance of brand names aided
the self-service movement, one of the keystones of the super-
market.38
4. Following World War II there was a trend toward larger
family units than in the 1930's. With more members of the family
to take care of, women found it difficult to shop frequently. When
they did go to the store, they bought in greater quantity and tended
to patronize supermarkets because of price appeal and convenience
offered.39
5. The scarcity of cheap household help today, compared to the
availability in the 1930's, influenced women to seek easier-to-prepare
foods. This in turn necessitated that the merchant carry a greater
variety of these foods. The larger facilities and resources of the
supers enabled them generally to benefit more than the small food
store.40
6. The growing baby crop, which began during World War II
and which has continued unabated since then, has placed an ever-
larger percentage of the population under 21 years of age. These
growing bodies have made it necessary for families, in order to sus-
tain this age group, to place an increasing portion of their expendi-
tures into food and related items sold in supers.
MARKET OF THE 1960s
Continuation of a favorable market for the "sizzling sixties" is
portrayed by the recent forecast of the magazine Life.41 The 55 mil-
lion families of 1960 are expected to increase to 66 million by 1970.
One out of every four 18-year-old girls would be married by the
38 E. B. Weiss, "Food Supers Will Find Going Tougher," Printers Ink, Vol.
239, no. 13, June 27, 1952, p. 71.
39 Charlotte Montgomery, "The Woman and the Modern Market," Progressive
Grocer, XXXI, no. 10, October, 1952, p. 170.
«>Ibid.
41 The magazine Life employed many market research experts to plan a re-
search project forecasting the market of the 1960's. The findings were published
in a booklet entitled The Market of the Sixties (New York: Time, Inc., 1960).
External Factors 51
end of 1960, the survey predicted. Prior to World War II, 53 per
cent of the women between 20 and 24 were married; in 1960, 65 per
cent of the women in this age group would be married, and the con-
tinued outlook is for a leveling off at that percentage. Furthermore,
women of today are bearing larger families, with the 1970 popula-
tion estimated at 210 million persons. A new baby boom is antici-
pated to start around 1965 when the girl babies born in the early
postwar years reach marriageable age. The 1970 birth rate is ex-
pected to be over 5 million compared with slightly more than 4 mil-
lion currently in 1960.
Families with teen-agers, which comprise the major market of the
1960's, will continue to spend out of proportion to their number,
especially for food and soft drinks. The number of inhabitants over
65 will increase by 19 million; and for the first time, this class will
have sizable incomes to spend. Wives between the ages of 35 and
64 are expected to have continued increase in income as a result of
their employment outside their homes. From 1940 to 1960, the num-
ber of working women between the ages of 35 and 64 more than
doubled.
During the 1950's, the population of suburban areas of metro-
politan markets grew seven times as fast as the rest of the United
States. Suburbs are expected to continue to expand. Overlapping
areas from one metropolitan center to another will create vast new
interrelated markets. Continued decentralized industry and service
organizations will strengthen the tendency toward convenience
shopping, with greater dependence on cars. The consumer will be
I of a higher intellectual level.
In 1947, family units in the $4,000 to $7,500 income bracket rep-
I resented about 23 per cent of all units but had 43 per cent of all
I disposable income. This group destroyed the traditional gap be-
I tween a mass market for necessities and the small class market for
J luxuries. By 1960, 22 million family units comprised this middle
I income group, a gain of 30 per cent over 1947. The families earning
more than $7,500 yearly have doubled since 1947 to over 12 million.
The number of family units under $4,000 annual income has de-
52 Supermarketing
clined both relatively and absolutely since World War II and com-
prises today only two-fifths of the families, whereas in 1947 they
represented about 70 per cent of the family units. By 1970, 45 per
cent of all families will have annual incomes over $7,500; approxi-
mately 39 per cent will be middle income units from $4,000 to $7,500
income, and only 16 per cent will have incomes under $4,000. This
substantial group of high income families will have broad, discre-
tionary purchasing power, from caviar and champagne to world
travel.
The market of special interest to the supermarket industry, that
for food, drink, and tobacco, is currently estimated at $91 billion.
This is expected to rise to $117 billion in 1970, a gain of 29 per cent.
Household and recreation goods, which totaled $35 billion in 1960,
are expected to rise to $53 billion by 1970, a gain of 51 per cent.
Another item of possible interest to the supermarket industry is
clothing. This totaled $35 billion in 1960 and will increase 18 per
cent by 1970 to $43 billion. The supermarket industry, faced with
these optimistic forecasts, can plan accordingly.
SUMMARY
The economic setting in which the supermarket developed was pictured
statistically in this chapter. These data, including shifts in upper income
shares, the rise in personal disposable income, and increased expenditures
in food stores, were presented to support the qualitative discussions. The
technological and psychological environment in which the supermarket
grew was depicted. The acceptance of the automobile as a shopping aid
and the shift in consumer buying habits were but two aspects covered.
No numerical claim was made as to the extent of the association between
the supermarket development and each of these external factors, indi-
vidually or as a group. The contention presented has been that the growth
of the supermarket industry since the "cheapy" development occurred
concomitantly with various external factors which furnished a favorable
atmosphere. Simply, the economic, technological, and psychological set-
ting for the development of the supermarket was extremely favorable.
And the period of the "sizzling sixties" promises more of the same.
SELLING OPERATIONS
INTRODUCTION
The preceding chapter covered the favorable economic, techno-
logical, and psychological setting in which the supermarket industry
grew. Statistics in Table 4-1 indicate that the total retail sales rose
from $48.3 billion in 1929 to $170 billion in 1954. Almost 15 per
cent of this $121.7 billion increase was accounted for by the super-
market. By 1954 supermarket sales of $18.2 billion represented al-
most 11 per cent of all retail store sales of $170 billion. The super-
market volume grew far more than that of the other food store
members. Yet, all were in the same economic setting during this
period. Therefore the supermarkets must have adopted or developed
operating practices that induced consumers to come to them in pref-
erence to competitors.
The purpose of this and the subsequent three chapters is to ex-
amine what the supermarket industry did to promote such progress.
What practices within the control of the operators themselves were
pursued? Whereas diversity among the members is great, certain
general or common characteristics of operation set the supermarket
apart from other types of retailers.
These characteristics are discerned through study of operating
and financial statistics of individual concerns as well as industry sur-
veys. The operating data are examined in this and the subsequent
two chapters in the framework of the main sections of an operating
statement; i.e., sales, cost of sale and gross margin, cost or ex-
pense, and profit divisions. Selling practices are reviewed first; cost
of sales and margins will be examined in Chapter 5; expense and
profit analysis will be contained in Chapter 6. The financial prin-
53
54 Supermarketing
TABLE 4-1 *
Sales of Certain Classes of Retail Stores
and Total Retail Sales
in the United States for the Years
1929, 1939, 1948, and 1954 (in billions of dollars).
Type of outlet
1929
1939
1948
1954
All retail store sales
$48.3
$42.0
$130.5
$170.0
Nonsuper grocery stores
7.3
6.2
16.9
16.2
Supermarkets f
—
1.5
7.8
18.2
Specialty food stores
3.4 §
2.4$
6.2 \
5.4
All retail sales except food store
group jf
37.6
31.9
99.6
130.2
* Data for 1929, 1939, and 1948 are found in U.S. Bureau of the Census,
Retail Trade— General Statistics, Part 1, Vol. 1, Government Printing Office,
Washington, D.C., 1952, p. 1.04. Data for 1954 are found in U.S. Bureau of
the Census, 1954 Census of Business, Bulletin R-2-2, Government Printing Of-
fice, Washington, D.C., 1957, p. 2-2.
f These statistics are found in Table 1-2.
| U.S. Bureau of the Census, Statistical Supplement, 1951 Survey of Current
Business, Government Printing Office, Washington, D.C., 1952, p. 25.
§U.S. Bureau of the Census, Food Retailing — Retail Distribution, M-93,
Government Printing Office, Washington, D.C., 1934, p. 9.
tf Calculated by subtracting total food store sales from total retail sales for
the respective years.
ciples of supermarketing will be studied in Chapter 7 in the frame-
work of the major asset and liability classifications of a balance I
sheet.
At the outset, to exemplify approximate supermarket operations,
the published results of two different operations are presented in
Tables 4-2 and 4-3. The findings of the Harvard Business School
Study of Food Chains, expressed as a percentage of sales, are con-
tained in Table 4-2. The operating results of Wilt's, an independent J
supermarket located in Elkhart, Indiana, are presented in Table 4-
3. These statements are submitted to exemplify approximate super-
market operations for both chains and independents. They are
not presented to show chain versus independent operation; nor are j
the data to be considered as typical for the entire industry. The
Selling Operations ^5
operating statements indicate merely approximate margin, expense,
and profit relationships for a supermarket. Operating policies
adopted by management can result in variations from these statis-
tics.
TABLE 4-2 *
Operating Statistics of Selected Food Chains Expressed
as a Percentage of Sales for the Years 1955 to 1958.
1958 1957 1956 1955
Sales 100.00 100.00 100.00 100.00
Cost of sales ." .' '. _7O50 ^63 *X61 _8L89
Gross profit "2050 20.37 19.39 18.11
Expenses
Payroll 10-07
Real estate 1-77
Equipment costs 1-38
Utilities ' 0.67
Supplies 1-14
Services purchased 0.25
Advertising (includes stamps) . 1.88
Traveling 0.10
Insurance (except real estate) . 0.14
Taxes (except real estate or in-
come) 0.53
Miscellaneous 0.61
Interest paid 0.24
Total expense 18.78
Net operating profit 1-72
Other income (primarily cash dis-
counts earned and interest) . . 1.17 1.21 1.22 1.17
Less income tax 1.48 1.50 1.48 1.28
10.01
9.74
9.68
1.64
1.54
1.45
1.42
1.39
1.36
0.62
0.61
0.60
1.18
1.11
1.08
0.26
0.26
0.27
1.87
1.44
0.82
0.09
0.08
0.08
0.13
0.15
0.16
0.54
0.49
0.48
0.61
0.63
0.56
0.25
0.27
0.24
18.62
17.71
16.78
1.75
1.68
1.33
Net profit 1.41 1.46 1-42 1.22
* Wilbur B. England, Operating Results of Food Chains in 1958 (Cambridge:
Harvard Business School, Bulletin No. 156, 1959), p. 2.
VOLUME-A SUPERMARKET NECESSITY
The stress on volume in a supermarket is inherent in the basic na-
ture of operation of this type of retail institution. The early super,
56 Supermarketing
TABLE 4-3 *
Operating Statistics of Wilt's Supermarket, Elkhart,
Indiana, Expressed as a Percentage of Sales
for the Year 1956.
Sales 100.0
Cost of sales 80.7
Gross profit 19.3
Expenses
Premiums 1.1
Advertising 0.6
Regular payroll 9.2
Executive payroll 0.5
Supplies 1.0
Utilities 0.3
Insurance 0.4
Rent 0.3
Taxes . 0.9
Depreciation 0.7
Interest 0.2
Other expense 1.5
Total expense 16.7
Net operating profit 2.6
Cash discounts 0.3
Net profit before income tax 2.9
* "Change or Die, Says Wilt's," Super Market Merchandising, XXIII, no. 8,
August, 1958, p. 47.
appealing on a price basis, needed volume to compensate for a
narrow gross margin and net profit. The market of today, operating
on a larger but still relatively small gross margin compared with
other types of retailers, also needs volume operation to compensate
for tight gross margins. In addition, the modern market has added
materially to its expense of doing business and its investment. Com-
petitive conditions prevent most markets from operating continu-
ously at a level which will yield the greatest dollar net return. Un-
used capacity appears to exist in most markets. Therefore stress
must be placed on added possibilities for volume to bring the market
Selling Operations 57
more in line with its capacity and optimum profit potential. These
relationships are examined in detail in Chapter 7.
SALES PRACTICES OF SUPERMARKETS
The basic technique of supermarket operation has been to trans-
act a large dollar volume.1 This has been accomplished by devices
such as:
1. Price appeal
2. Display techniques
3. Self-service
4. Attractive and convenient shopping facilities
5. Advertising and promotion
6. Large inventories but well regulated with regard to turnover
7. Addition of diversified fines of merchandise including nonfood
items
Each of these devices for building volume is examined in detail
in the remainder of this chapter.
Price Appeal
With regard to price, from the inception of the "cheapy" super-
market to the modern supers of today, the general practice has been
to sell for less.2 Through its low-cost methods, the supermarket, more
than any other food store, has passed on to the customer over the
past 25 years greater values plus additional services.3 The "cheapy"
super rode to fame by its "price wrecking" policies and large vol-
ume. Supers still stress low prices as a means of attracting customers
and building volume. Witness the full-page newspaper ads of spe-
cial values offered by supers. Price studies dating back to the
"cheapy" supers indicate the constant endeavor of modern supers
to sell for less, and this is further substantiated by the small gross
*M. M. Zimmerman, "Ten Years of Supermarket Growth," Super Market
Merchandising, XI, no. 12, December, 1946, p. 45.
2 Victor Lebow, "What Department Store Managers Should Know About
Supermarkets," Journal of Retailing, XXIX, no. 1, Spring, 1953, p. 17.
3 William Applebaum, "Is Supermarket Efficiency Slipping?" Chain Store
Age, Grocery Store Executive Edition, February, 1952, p. 169.
58 Supermarketing
margin of the supermarkets in comparison with that of other forms
of retailing.4 Even though supers generally have modernized their
stores and made them attractive, studies have revealed customers
still have the "opinion" that supermarkets quote low prices.5 Akin to
price appeal is the concept of quality. In the main, whether it be
nationally advertised, branded merchandise, or chain store brands,
supermarkets have been associated with the concept of giving satis-
factory quality in relation to price.6 One of the keystones of super-
market operation, self-service, is in part predicated on the customers
recognition of price bargains on known lines.
Pricing Policies
The pricing policies of individual supermarkets can vary widely
as a result of local factors. In the main, however, supers basically
follow a policy of normal markup pricing, tempered by competitive
conditions and price leadership. As a simple example consider that
a can of tomato soup costs a super 10 cents and the normal markup
is 9. 2 per cent, based on selling price; then
Selling price - cost X 100% jgg X 100%
s p ~ 100% - markup % at retail ~ (100% - 9.2% )
= 11 cents
or, the soup would sell at 11 cents per can.
Most comparable concerns in that immediate trading area, un-
less a particular store is differentiated by offering different services,
will price the soup competitively. However, if a store faces little
competition, markup on the tomato soup could range as high as 23
per cent, with the soup selling at 11.5 cents per can, or 2 cans for
23 cents. Chain stores in a given city, except for advertised specials
4 Gross margins are discussed in detail in Chapter 5.
5 In a study conducted by the magazine Super Market Merchandising in 1948,
the number two reason advanced for trading in supermarkets was "Low Price."
The findings of the 1958 Survey of Super Market Shoppers, Their Buying Habits
and Attitudes, published by Burgoyne Grocery and Drug Index, Inc., and the
results of a study by Newel Comish, "What Influences Customer Choice of Food
Store?" Journal of Retailing, Summer, 1958, indicate price is still a significant
factor in the patronage of supers.
6 Lebow, op. cit.
Selling Operations 59
which are announced throughout the area, have marked similar
merchandise at different prices at different locations.
A smaller independent supermarket, not associated with a whole-
sale or retail-sponsored voluntary chain, may even be forced to op-
erate on a smaller markup in a highly competitive area or differen-
tiate the store because of its lack of buying power. To attract
customers to the market some stores have differentiated by offering
: unusually high quality meat or by remaining open longer hours.
A manufacturer of soup, desiring more display space and a result-
ing greater share of the market, may offer comparable buyers a deal
involving cooperative advertising or price concessions. The tomato
soup possibly can be advertised and sold at 10 cents a can. Deals
such as this on a wide variety of merchandise occur daily and con-
stantly upset the market equilibrium. Witness the week-end, adver-
tised specials offered in the Thursday night ads in which supers
still use the price appeal as an attraction to customers.
The particular store or stores accepting the special soup deal in
a certain trading area will have a temporary price advantage. Stores
not participating in the arrangement may either cut the price of
tomato soup to 10 cents or push some other price special in their
weekly promotions, continuing to sell tomato soup at 11 cents per
can to the shoppers attracted by other bargains or patron-buying
motives. At the end of the special promotion (several days to a
week) the price of tomato soup will revert back to the original
equilibrium price of 11 cents per can. No one company can continue
to enjoy indefinitely the advantages of a special promotion or pur-
chase because the normal markups established for the various classes
of commodities in the industry are a function of cost of selling and
profit on the one hand and giving the consumer what he or she de-
sires on the other. Supers are forced by their customers to handle
some products that yield low profits per linear foot of display space.
The establishment of normal markups or margins is discussed in
Chapter 5.
Produce marketing is complicated further by varying degrees of
product deterioration, fluctuations in supply, and great number of
60 Supermarketing
products handled. Managers apply suggested markups on the indi-
vidual products to make an over-all initial markup for the depart-
ment of 30 to 35 per cent and a maintained markup of about 25 per
cent after allowances for markdowns. Spoilage losses average from
1 to 3 per cent of sales.
Meat pricing is complicated by the wide fluctuations that occur
in wholesale prices for meat. Furthermore, production costs are in-
curred in the super to prepare the meat in proper cuts and packages
for the consumer. While an over-all yearly markup percentage gen-
erally is set as a standard, a super must operate daily in the approxi-
mate spread between selling prices set by competition plus what
consumers will pay and the cost of the meat set by factors over
which the super has no control. The supermarket must know the
fixed and variable costs of handling all kinds of meat, as well as
which types of meat cuts pay off. Skill in pricing joint products (for
example, short ribs and roasts from the same rib) is essential to
maintain the general gross margin and still attract customers on a
price basis.
Display Techniques
A second means of developing large volume is to display mass
stocks of inventory.7 At an early date in its history the super found
that mass displays of merchandise psychologically tended to make
people buy. Mock-ups, mirrors, and lighting have been used to give
the illusion of bigness. Modern display fixtures, refrigerators, and
freezers have been developed. Manufacturers constantly have
studied package design to make the product more appealing. Studies
have been made on the value of display space to increase sales.8
Multiple packaging has been developed to create "billboard illu-
sions" in stores, as well as make display space more usable directly
on floors of supermarkets. The placing of related merchandise, such
as wash cloths adjacent to toilet soap, has boosted sales. Other re-
7 William S. Ireland, "Mass Sells More," Chain Store Age, Grocery Executive
Edition, August, 1950, p. 68.
8 "Merchandise Location," Chain Store Age, Grocery Executive Edition, De-
cember, 1958, p. 52.
Selling Operations 61
lated items include cellophane wrapped footballs with vitamin pills
and table cloths with baby food.9 Studies on impulse buying have
indicated that approximately 25 per cent of the purchase in supers
are unplanned. Other surveys have shown that 77 per cent of
women who shop with children purchase items at the suggestion of
children who see the item on display. Shoppers, surrounded by an
assortment of related merchandise such as health and beauty aids
in a supermarket, respond to the display of the merchandise and do
not take into account the type of store in which they are shopping.10
The supermarket has been an unusually lucrative source of un-
planned purchases. Increased volume is thus obtained.
Self-Service
Akin to mass displays is the policy of self-service. Supermarket
operators generally are of the opinion that letting people roam with
push carts has paid off in increased sales.11 Shoppers can feel, pinch,
smell, and handle the merchandise; they can compare brands and
read labels. To feel is reassuring. No clerk anxiously stands by to
finish the sale or hurry the customer. Shoppers can budget as they
go along. The McCall's study of 1,090 families disclosed 28.7 per
cent of the respondents preferred to shop in supermarkets because
they could make their own selection.12
While the supers originally had only self-service in groceries, they
have adapted this technique to meat, dairy, produce, and bakery
departments, with outstanding results. The facts are that when a
supermarket operator puts in a self-service meat department, his
sales usually increase because customers 13
1. Hate to wait.
2. Want to search among a broad variety of kinds of meat.
9 "New Angles on Related-Item Display," Super Market Merchandising,
XXII, no. 4, May, 1957, p. 99.
10 John R. Gilman, "Why Package Products Face Super Competition in Su-
permarkets," Advertising Agency, 45, no. 6, June, 1952, p. 64.
11 Ibid.
12 Home Testing Institute, Inc., McCall's Food and Grocery Products Pur-
chase Diary Study (New York: McCall Corp., 1956).
13 Don Parsons, "The Supermarket Formula," Food Business, Vol. 6, no. 5,
May, 1958, p. 17.
62 Supermarketing
3. Like to make their own choice.
4. Like to see what they are getting.
5. Like to take their own time to select purchases.
The self-service technique originated in supers was adopted by
other forms of retailing on a growing scale since about 1950. Wal-
green, Woolworth, and Kresge are examples in the drug and variety
store field. Self-service, called "quick service," had swept the variety
industry to the point in 1958 where 42 per cent of total variety stores
had adopted quick service.14 Department stores have re-examined
the problem of determining the amount of assistance to be given to
a customer and have developed new store layouts and display tech-
niques with the aim of not only increasing sales but of also reduc-
ing selling costs.15 This simplified selling, as it is referred to in de-
partment store terminology, is exemplified by the Fedway Stores
division of Federated Department Stores, Incorporated.
Attractive and Convenient Shopping Facilities
Another device to increase volume has been to make the store
attractive, convenient, and pleasant for shopping.10 The "cheapy"
super maintained an air of cheapness which contributed to the feel-
ing of obtaining bargains. Since the advent of the supers, the gen-
eral policy has been to make the stores more appealing through
more attractive interiors, better lighting, music, air conditioning,
rest rooms, and parking lots. This trend of "trading up" the stores
has been questioned as an unnecessary expenditure, since it has
tended to increase expenses and raise gross margins.17 These expend-
itures possibly could result in the super losing its basic competitive
advantage of price appeal. On the other hand, it has been con-
tended that these expenses for comfortable shopping are a rela-
14 "Self-service in Variety, 1958," Variety Store Merchandiser, Vol. 54, no. 4,
May, 1958, p. 67.
15 C. W. Barker, I. D. Anderson, and J. D. Butterworth, Principles of Retail-
ing (New York: McGraw-Hill Book Co., Inc., 1956), p. 136.
16 "Appearance Counts at Penn Fruit," Super Market Merchandising, XIII,
no. 9, October, 1949, p. 74.
17 "Schwegmann Brothers, Inc.," Business Week, no. 1136, June 9, 1951, p.
120.
Selling Operations 63
tively small percentage of sales; the resultant increase in volume
has improved the earnings effectively.18
An example of a recently opened modern super with decor is
Eavey's Super Market in Fort Wayne, Indiana. It has 50,250 sq ft
of selling space, a "kiddie korral," post office, flower shop, liquor
department, utility payment booth, and a carillon for time and
weather.19 Despite the cost of these attractions, advertised prices
are in line with chain competition and the concern appears to be
successful.
The term "convenience of the supermarket to the customer" is
concerned with the ease by which the consumer gets to the super-
market. This varies by particular kind of store location— central busi-
ness district, neighborhood location, planned outlying shopping
center, or highway market. Management has come to realize that
nearness in itself is not a basic prerequisite per se, inasmuch as from
80 to 90 per cent of the customers use a car for grocery shopping.20
General factors to be considered in selecting a supermarket site to
make the location convenient include:
1. Street walking traffic
2. Street driving traffic
3. Congestion of streets to get to the market
4. Intersection of other streets
5. Availability of parking
6. Ease of access or egress of the parking lot
7. Public transportation
8. Zoning in the neighborhood
Furthermore, management must examine other location factors in
the selection of a market site, including:
1. Land size
2. Suitability of store rental property
3. Number of competing stores
18 Applebaum, op. cit.
19 "Eavey's Young Giant," Super Market Merchandising, XXII, no. 1, Janu-
ary, 1957, p. 85.
20 Home Testing Institute, Inc., McCaU's Food and Grocery Products Pur-
chase Diary Study, op. cit.
64 Supermarketing
4. Standards of competition
5. Population trends
6. Income trends
7. Diversity of income sources
8. Type of customers
9. Population density
10. Taxes
11. Neighborhood changes
12. Size of trading area
The McCalTs Food Study disclosed that the average family
spends $25.27 per week or $1,314.04 per year on grocery store prod-
ucts. If $110 of yearly sales per square foot of space is used as a
standard, a market of 10,000 sq ft of total covered space would need
837 families in order to transact a yearly volume of $1,100,000. This
average figure can vary in specific instances, but it is presented to
illustrate the importance of having sufficient potential in the area
from which patronage is drawn.
Rules of thumb are difficult to establish in locating a super-
market. In a built-up neighborhood of one- and two-family units,
a supermarket should control at least 20 per cent of all food busi-
ness in its primary trading area of a 1-mile radius of the store, at
least 10 per cent within the 1- and 2-mile radius, and an additional
1 to 2 per cent within the 2- to 5-mile radius of the store. Mr. Ray
Harb, general sales manager for Red and White, Incorporated, re-
ported that a metropolitan location can pull customers who buy all
requirements from a distance that takes a maximum of 20 minutes
to drive.21 In rural areas the allowance for driving should be 30 to 40
minutes. Other results of a study made by Food Topics on the maxi-
mum trading area of a supermarket are shown in Table 4-4. In a
city with inhabitants of 500,000 or more, a super can draw from a
radius of 7.1 miles from the store. In a small town of less than 10,000
persons, the trading-area radius ranges up to 22.4 miles. Again it is
cautioned that locational problems of each store are unique and sub-
ject to individual variation.
21 "Store Locations," Food Topics, January 23, 1956, p. 1.
Selling Operations 65
Trends in supermarket location indicate that management has
followed the movement of the population to outlying residential or
suburban areas in an endeavor to make the facility convenient for
shopping. In fact, even highway locations have been pioneered in
recent years to satisfy this demand.
TABLE 4-4 *
Maximum Trading Area Radius for a $500,000
Yearly Volume (and over) Supermarket by
Size of Community.
Trading area
City size
radius (miles)
500,000 and over
7.1
100,000-499,000
8.8
25,000-99,000
10.4
10,000-24,000
12.1
Under 10,000
22.4
* "Store Locations," Food Topics, January 23, 1956, p. 1.
Advertising and Promotion
Promotion and advertising have been attempted to increase sales.
Attractions for inducing people to shop at supers have ranged from
automobile and money raffles to guest appearances by movie stars.22
While stores differ as to the extent of promotion, an endeavor has
been made to make the super a family place to shop, a source of
evening entertainment, a place to go. Snack bars, magazine sections
for children, soda fountains, kiddyland rides, and special attractions
galore have abounded in certain supers. Yet, the food-chain operat-
ing statements for 1958, shown in Table 4-2, indicated advertising
and promotion expense (including trading stamps) to be 1.88 per
22 Pragmatic operators will find of extreme value a series of articles entitled
1,000-and-one Super Promotion Ideas, which started in the March, 1951, issue
of Super Market Merchandising and continued intermittently until September,
1952. These ideas, together with practical illustrations, cover the topics of grand
openings, storewide promotions, institutional campaigns, anniversaries, and spe-
cific product promotions. Also of value is an article "51 Public Relations Ideas,"
Super Market Merchandising, XXIV, no. 5, May, 1959, p. 113.
66 Supermarketing
cent of sales. Surveys conducted by the magazine Super Market
Merchandising indicated that advertising expenditures (excluding
stamps) in 1955 and 1956 were 0.84 and 0.93 per cent of sales, re-
spectively.23
Promotion can take two directions. One is the special, short-run
type; the other is the long-run, regular promotion, usually of a pre-
mium nature. The former is exemplified by the following:
1. Grand openings: free gifts or night club shows
2. Storewide promotions: airplane ride with the purchase of $25
or more, mystery shopper sale, or finder's keepers sale
3. Institutional: polio campaign or set-up of art galleries
4. Anniversary: serve breakfast or give birthday cakes to all
babies born the week of the sale
5. Holiday: free trimmings if you purchase a turkey at Thanks-
giving
6. Product lines: half-cent sale or shopping bag specials full of
canned goods
The regular or constant type of promotion typically involves a
premium. There are four types.
1. Giveaways: Have a lottery every week or give a certain dish
of a china set with a stated dollar purchase. Stagger the kind of dish
given away so that it will take several months to get a whole set.
2. Discount-on-purchase plan: Offer certain merchandise at a dis-
count if customers purchase a certain dollar amount. The merchan-
dise sold at a discount can range from special premiums to regular
merchandise carried.
3. Cash register receipt: Save receipts, and after they total a cer-
tain prescribed amount, offer the customer a premium such as a
dollar salad bowl.
4. Stamp or coupon plan: Give coupons or certificates to be ap-
plied to the purchase of merchandise carried by the store. Or use
the conventional type of stamp plan whereby stamps are given gen-
erally at the rate of one stamp for each 10-cent purchase. The stamps
23 "How's Business," Super Market Merchandising, XXII, no. 8, August, 1957,
p. 113.
Selling Operations 67
are saved in a booklet and redeemed for a great variety of mer-
chandise premiums.
Of all the regular type of promotion plans, trading stamps have
become the most vital promotional tool for supermarket operators.
A study made by Progressive Grocer indicates that the typical super
which issues stamps spends 2.03 to 2.06 per cent of the sales dollar
for this device.24 The general use of trading stamps has grown un-
evenly and cyclically since the 1890's, with a department store gen-
erally as the core. While some supers introduced trading stamps
earlier, their general acceptance dates from about 1950. For a super-
market to use this promotional tool successfully, certain prerequi-
sites must be met. There are six discernible features.25
1. The user should be part of a group of different stores reason-
ably close to each other geographically. All should handle the same
stamp, with the super or a department store as the center of influ-
ence.
2. Stamps are promotional; customers must be encouraged to save
them and associate the stamps with that particular store.
3. Stamps must obtain and hold additional volume; while the vol-
ume increase varies, at least a 10 per cent increase in sales is needed
to break even on the stamp cost.
4. The super must be able to handle added volume without ma-
terially increasing the overhead.
5. Stamps are not a panacea for supers whose quality and type
of service are inferior to that offered by competitors.
6. Stamps do not permit much, if any, independence in pricing.
The use of trading stamps reached its zenith in 1956 when 39 per
cent of the supermarkets reported using this premium 26 In 1957
the upward trend finally halted when only 38 per cent reported us-
ing stamps; in 1958 only 35 per cent reported stamp plans in opera-
24 Facts in Grocery Distribution (New York: Progressive Grocer, 1958), p.
F-19.
25 Albert Haring and Wallace O. Yoder, Trading Stamp Practice and Pricing
Policy (Bloomington: Indiana University, 1958), p. 284.
26 Facts in Grocery Distribution (New York: Progressive Grocer, 1959), p.
F-13.
68 Supermarketing
tion. However, there is no indication that stamps will fade into the
position of relative insignificance as their past history purports, in-
asmuch as the major factors that led to stamp ascendency will con-
tinue to influence the market.27 Indications are that certain indus-
try giants may adopt stamps as a promotional tool, with market
tests being conducted on a limited experimental basis.
Large Inventory
Merchandising is defined as the adaptation of a product to fit the
requirements of the buyer, coupled with the effective presentation
of such goods.28 Supermarkets merchandise through their buyers
and buying committees who screen the veritable horde of items and
deals presented. Merchandising is completed by the various display
and sales techniques that result in the movement of goods to the
ultimate consumers.
Supermarkets have carried larger and more diversified inventories
in an effort to increase sales. Examine the increase of the number
of items carried: 29
Year Items
1928 867
1946 3,000
1950 3,750
1955 4,723
1957 5,144
1958 5,600
This increase resulted in part from the shopper's desire to select
from many lines. In addition, manufacturers produced and promoted
new items in accord with the strong desire of the housewife to want
convenience in food preparation.30 Ingenuity and skill of food proc-
essors created new and better products, such as frozen juices and
27 Eugene Beem, "Who Profits from Trading Stamps," Harvard Business Re-
view, Vol. 35, no. 6, November-December, 1957, p. 121.
28 T. N. Beckman, H. H. Maynard, and W. R. Davidson, Principles of Market-
ing (New York: The Ronald Press Co., 1952), p. 5.
29 Facts in Grocery Distribution, op. cit., p. F-3.
30 "The Fabulous Market for Food," Fortune, XLVIII, no. 4, October, 1953,
p. 135.
Selling Operations 69
cake mixes. Most supers are cramped for space; it is a constant fight
to get merchandise on display. Manufacturers' salesmen do not sell
merchandise to supermarket buyers; instead they sell dollar profits
to the supers for granting them location and display space in the
store. In the case of many new items or brands, advertising done to
presell the customer is not sufficient inducement to buy. Various
promotions, premiums, coupons, and deals are required to get the
item carried.
Basically, an item is judged for stocking in supermarkets on turn-
over, gross margin, and expense of handling and selling.31 Inherent
in these major features are space for display, storage, competing
lines handled, advertising allowances, promotional support, items
given a store, and merchandise-returns policy. These criteria, which
influence profits, vary for different kinds of merchandise. The super-
market has attempted to attain a large volume ( and its resultant ad-
vantages) through a high rate of turnover.32 Rates for selected
supermarket chains for 1956 are shown in Table 4-5.33 These range
from a low of 7.8 for A. J. Bayless Markets, Inc., to a high of 14.94
for Daitch Crystal Dairies, Incorporated. A turnover of about 12
times per year, or once a month, appears to be average. The Harvard
Study of Selected Food Chains indicated a stock turnover of 12.3
for 1958.34
The wide variation in turnover rates is in part attributed to the
lines of merchandise stressed by the respective companies. The
trend toward larger stores in the postwar period has offered addi-
tional shelf space for display and has made the super a bonanza for
visiting salesmen. The increase in number and kind of food items
carried, coupled with nonfood lines, has tended to lower turnover
rates in the postwar period for many concerns. As an example, be-
31 Malcolm P. McNair, "Thinking Ahead in Retailing," Super Market Mer-
chandising, XV, no. 8, August, 1950, p. 106.
32 Milton Alexander, "Where We Stand on Non-food Merchandising," Pro-
gressive Grocer, XXXI, no. 10, October, 1952, p. 200.
33 The supermarket chains listed in Table 4-5 were those whose detailed
operating statistics were published in Moody's Industrial Manual.
34 Wilbur B. England, Operating Results of Food Chains in 1958 (Cam-
bridge: Harvard Business School, Bulletin 156, 1959), p. 33.
70 Supermarlceting
tween 1950 and 1956 the turnover for Colonial Stores, Incorporated,
dropped from 15.0 to 10.3; for Lucky Stores, Incorporated, from
10.8 to 7.9; and for Market Basket, Incorporated, from 11.7 to 10.2.
This is a merchandising trend that management must watch. How-
TABLE 4-5 *
Annual Inventory Turnover of Selected Supermarket Chains
for the Year 1956.
Company
Turnover
American Stores Co.
11.7
A. J. Bayless Markets, Inc.
7.8
Century Food Markets Co.
11.3
Colonial Stores, Inc.
10.3
Daitch Crystal Dairies, Inc.
14.9
Fisher Bros., Co.
11.2
Food Fair Stores, Inc.
14.8
Food Mart, Inc.
9.5
Grand Union, Inc.
11.2
Jewel Tea Co., Inc.
10.8
Kroger Co.
11.5
Lucky Stores, Inc.
7.9
Market Basket
10.2
Purity Stores
13.0
Safeway Stores, Inc.
10.9
Shaffer Stores Co.
10.2
Shopping Bag Food Stores
10.2
Sunrise Supermarkets Corp.
13.7
Thriftmart, Inc.
7.9
Weingarten, J., Inc.
9.8
* These statistics are calculated from data contained in Moody's Industrial
Manual. Cost of sales is divided by average inventory at cost.
ever, profits have not appeared to suffer inasmuch as gross margins
generally have improved for concerns that lower turnover to carry-
more lines. As a generalization from the 1956 data, stores with the
lower inventory turnover rates tend to have the higher gross mar-
gins.35
Supermarkets have enjoyed a high inventory turnover as com-
pared with that of other retailers, as shown by the statistics in Table
35 Gross margins are discussed in Chapter 5.
Selling Operations 71
4-6. The average turnover of about 12 times per year is approxi-
mately triple that for department, drug, and variety stores, which
average about four times per year. Simply, the velocity of goods in
and out of a super is three times that for a department, drug, or
variety store; or, a supermarket buys, stocks, sells, makes a profit,
and repeats the cycle about three times while a drug, department,
or variety store is doing it once with the same dollar inventory. This
is a vital consideration in the handling of nonfood lines.
Addition of Nonfood Products
Akin to the problem of controlling a large inventory is that of
adding nonfood products to the line. The supermarket has incorpo-
rated in its operation the rapidly moving meat, dairy, and produce
TABLE 4-6
Annual Inventory Turnover of Various Lines
of Retailing for the Year 1954.
Department stores 3.7 *
Drug stores 3.9 f
Hardware stores with sales over $200,000 2.3 \
Jewelry stores with sales over $500,000 1.1 §
Variety stores 4.2 |
* Controllers Congress, 1954 Merchandise and Operating Results (New York:
National Retail Dry Goods Association, 1955), p. 1.
f Lilly Digest (Indianapolis: Eli Lilly and Company, 1955), p. 21.
t "1954 Retail Hardware Survey," Hardware Retailer, June, 1955, p. 14.
§1954 Operating Statistics (New York: American National Retail Jewelers
Association, 1955), p. 4.
fl "Harvard Report on Variety Chains," Chain Store Age, Variety Store Man-
agers Edition, XXXI, no. 8, August, 1955, p. 62.
items; but it also has concentrated on fast-turnover nonfoods which
have experienced higher markup and profits. For the year 1958,
food stores sold $1.82 billion in nonfood items exclusive of tobacco
products. Of this group, health and beauty aids, with sales of $1.10
billion, were the largest group.36 This substantial $1.10 billion total
36 Facts in Grocery Distribution, op. cit.
'2 Supermarketing
represented 60 per cent of the entire national volume of health and
beauty aids. Other classes of nonfoods included greeting cards, mag-
azines and books, toys, records, stationery, clothing, dry goods, and
film. In addition, tobacco products of $1.8 billion were sold in
grocery stores during the year 1957.37 A study made by Chain Store
Age disclosed that the 1959 supermarket transacted 4.3 per cent of
total sales in tobacco products, 2.3 per cent in health and beauty
aids, 1.1 per cent in housewares, and 0.5 per cent in magazines and
books.38
The super is basically a food store; many of these nonfood lines
create a problem of buying, stocking, rotating, and selling that dif-
fers from the food departments. While the bulk of nonfoods are
handled through the supermarket buying division, the tasks of mer-
chandising nonfoods have been simplified partly by the use of rack
jobbers for at least part of the needs, as shown by the data in Table
4-7. The rack or short-order jobber performs the function of stock-
TABLE 4-7 *
Source of Nonfood Products in Supermarkets
Expressed as a Percentage of Stores
Using the Source.
Source
Drugs
Housewares
Toys
Soft Goods
Manufacturer
67.2
58.3
65.5
79.2
Rack jobber
24.1
66.8
28.4
46.6
Food wholesaler
7.6
3.6
2.0
48
Other wholesaler
12.1
36.4
11.4
4.7
Concessionaire
0.0
0.1
0.6
0.4
* "Non-Foods Jump to Major Rank," Super Market Merchandising. XIX no
1, January, 1954, p. 36. ' '
ing and rotating merchandise and keeping the shelves clean. The
general practice has been for the store to receive 25 per cent as its
37 Supermarket News, April 14, 1958, p. 52.
38 "What Do Food Chains Sell?" Chain Store Age, Grocers Manual Issue,
July, 1959, p. 109.
Selling Operations 73
share of all merchandise sold.39 Stock left in the store by the rack
jobber normally remains the property of the jobber until sold. Mer-
chandise is sold in the regular manner, and the consumer does not
know that consigned products are being purchased.
In a study covering the influence of nonfood merchandise on food
products, the following data were disclosed: 40
1. Supers reduced the amount of space for food products by less
than 10 per cent in order to stock nonfoods.
2. New stores were built larger so as to handle both lines.
3. The food lines that suffered most were the slow turning, less
profitable ones.
4. The nonfood lines carried had to turn over rapidly, to take up
little room, and to be adapted to self-service sale and not require
technical selling.
Furthermore, studies revealed that visits to food stores were about
four times more than those to every drug store and eight times more
than to every hardware store.41 Mathematically there was greater
chance for displayed merchandise to be purchased in a super. The
trend toward the sale of nonfoods in supers has been pronounced
in the postwar period.
One of the more recent nonfood trends has been the marriage of
the discount house and the supermarket in the form of giant mer-
chandising colossi.42 Safeway Stores, Incorporated, has opened
a discount center within one of its food markets in Bakersfield, Cali-
fornia, in which appliances, sporting goods, and related items are
featured. Schwegmann Brothers has opened a store in New Orleans
with 189,000 sq ft of space on the first floor and 55,000 sq ft of sell-
ing space on the mezzanine to merchandise an infinite variety of
stock. Two Guys from Harrison and the National Grocery Company
39 Interview with Chris Tarrant, Secretary, Grocerland Co-operative, Inc.,
Chicago, Illinois, on June 20, 1957.
40 "Supers Bid Welcome to Soft Goods," Super Market Merchandising, XVIII,
no. 7, July, 1953, p. 27.
41 Gilman, op. cit.
42 "The Super Super Market," Super Market Merchandising, XXII, no. 7,
August, 1957, p. 56.
74 Supermarketing
have opened a 110,000-sq ft operation estimated to do $20,000,000
in food, durable goods, auto accessories, and promotional items.
Merchandise is received directly from the manufacturer in drop ship-
ments. Retailing innovations of this type may cause an upheaval in
the world of retailing.
SUMMARY
Supermarkets have adopted practices that have led toward increased
sales per store. These practices have included low price policies, mass
displays, large stocks (but carefully selected as to turnover), self-service,
promotions, addition of certain nonfood departments, and improved ap-
pearance and services. Excellent merchandising practices to obtain in-
creased sales per square foot of floor space and linear display space have
been pursued. Management has taken advantage of the desire of the
consumer for one-stop shopping by selection of merchandise and expand-
ing store building programs. Simply, the policy is to attract the consumer
and attractively display a variety of fast-turning merchandise that can be
purchased as a result of planned purchases as well as impulse buying.
These selling policies are a must if a store is to realize its full potential
during its lifetime, the length of which is governed by unpredictable
factors. Detrimental population shifts may take place in a store's trading
area, competition may move in, or the facilities of the store may become
outmoded. A given store has certain facilities with which to make a profit,
and in the main, these resources do not always appear to be used at maxi-
mum capacity. Thus management must strive to make the most out of the
facilities over a predetermined period of time. In a store's trading area,
management must strive to obtain its maximum share of the available
market commensurate with the store facilities. The marginal customer at-
tracted or the extra dollar of sales to the established customer has a sig-
nificant impact on profits of a store. Not only does the added sales dollar
reflect in the normal profit percentage, but it also contributes to an in-
creased profit percentage. This interesting phenomenon will be presented
in Chapter 7 after margin, expense, and profit relationships have been
examined.
BUYING OPERATIONS
AND MARGINS
INTRODUCTION
The preceding chapter pointed out the necessity for a large vol-
ume per super and examined the selling techniques designed by
supermarkets to generate this needed large volume. It is the pur-
pose of this chapter to continue the study of supermarketing prin-
ciples, still in the framework of an operating statement. Attention
in this section is focused on ( 1 ) cost of goods sold and ( 2 ) principles
involved in the establishment of gross margins. The former includes
a review of buying practices and techniques developed by this in-
dustry.
COST OF GOODS SOLD
There is a maxim in retailing that anything well bought can
be sold at a profit. Department stores recognized this principle early,
as did food chains. Buying is an area of specialization in itself, and
the demise of the small food store can be attributed to a large ex-
tent to improper or inept purchasing.
Balance of Buying Power Favors Supers
Supermarkets in 1958 had sales of $28.7 billion.1 Inasmuch as cost
of goods sold in a supermarket averages about 79.50 per cent of the
sales dollar, merchandise purchases approximated $22.8 billion in
1958, assuming no major change in inventory position by the mem-
bers.2 Supers, in the aggregate, wield a powerful buying force.
1 See Table 1-2.
2 See Table 4-2.
75
76 Supermarketing
Furthermore, the strong trends toward larger stores and more
stores under a common ownership through horizontal integration
have given the individual members of this industry more potent bar-
gaining power. Even an individually owned store with typical yearly
sales of $1,000,000 is a highly respected customer, since purchases
for that operation approximate $800,000. As a result, transactions to-
day between the buyer (the super) and the seller (the manufac-
turer) are more of a cooperative venture in which the manufacturer
needs the assistance and cooperation of the supermarket.
Routine Buying Policies
Many of the purchases of a supermarket are of a routine nature
from established sources of supply. It would be difficult to envisage
a super without Ritz crackers or Campbell's tomato soup. Responsi-
bility for buying, the actual placing of the order, varies according
to the size and organizational structure of the company. Specialized
buyers are used by the large chains for routine buying, with store
managers requisitioning from the warehouses. In some smaller or-
ganizations the entire buying responsibility for routine purchases
is handled by one individual. Some firms become members of whole-
sale or retail voluntary chains in order to procure staple items at
low cost. Department managers, specializing in certain areas such
as produce and meat, have assisted in routine procurement for the
one-or-few unit operations. Ordering and shelf stocking of certain
items frequently are handled by manufacturers' salesmen under the
authorization of the owner, manager, or person responsible for buy-
ing.
Yet, even in the purchase of regular items, care must be taken
to make certain that the best possible prices and deals are ob-
tained. The purchase of routine merchandise must be an integral
part of the selling program. The buyer must be aware of special pro-
motions, displays, local and national advertising, economical han-
dling of merchandise, warehousing, promptness of delivery, and
turnover. Some of the larger firms, such as Jewel Tea Company,
have acquired electronic computers to handle the logistics problem
Buying Operations and Margins 77
of most economical handling and warehousing of merchandise. In
turn, manufacturers must not be complacent about their established
brands in a super. Commodity analysis constantly takes place, either
subjectively by a busy owner or manager or objectively by account-
ants and statisticians who compute dollar profit per linear foot of
display space. No item on the shelves of a super is in a haven. It
must sell or be eliminated.
New Products— Life Blood of a Super
Merchandise that is well established in a supermart under a sys-
tem of cooperation between the manufacturer and the supermarket
is "bread and butter" volume. These items reflect customers' needs
and wants and move off the shelves. However, a dynamic super-
market that is striving for added volume and a greater profit per-
centage must evaluate successfully new products on a continuous
basis. New items that sell are the volume builders that a super needs
to add increased profits to the store. A supermarket retains its basic
competitive position in a trading area by 3
1. Offering an expanding variety of merchandise.
2. Developing a good reputation for offering new items.
3. Functioning as the purchasing agent for the community.
4. Differentiating its store from competition.
5. Associating with the news value inherent in new products.
The problem of adding new merchandise to the line becomes
more acute because of the difficulty in defining exactly what a new
product is. A new item can be 4
1. A product that hasn't existed previously or a product so
changed as to make most existing items obsolete.
2. A product that has been changed in varying degree in con-
struction, design, color, size, or package.
3. A product on the market not previously handled by the par-
ticular super.
3E. B. Weiss, Winning Chain Store Distribution for New Products (New
York: Doyle, Dane, Bernbach, Inc., 1956).
4 Ibid.
78 Supermarketing
4. An old item made by a new manufacturer.
Supermarket attitude toward new items will vary, depending upon
how new products fall into these divisions as well as upon the pres-
tige and record of the supplier.
Buying Committee
As a result of buying complexities of stocking the myriad of new
items and the importance of integrating purchasing, sales, advertis-
ing, and promotion into a unified merchandising program, super-
markets have developed buying or merchandise committees. Ap-
proximately 88 per cent of the supermarkets have these committees,
which replaced food retailing by a federation of individual apron-
stringed grocers with a select group of skilled merchandisers having
the power to match giant manufacturers.5 The stated purpose of
these committees is to 6
1. Remove buying decisions from an emotional atmosphere.
2. Prevent a buyer's personal likes and dislikes from entering into
a decision.
3. Help store and field personnel to understand buying opera-
tions at headquarters better through rotating participation of some
members.
4. Capitalize on collective knowledge.
5. Provide for the orderly continuity of buying operations.
Buying committees range from 3 to as many as 17 members. They
are made up of a buyer and other top advertising, promotion, mer-
chandising, and sales executives. Frequently store managers are
included to make their operation more democratic. Each member
on the committee has one vote, and it takes a simple majority to add
a new item to the line. Faced with the problem of buying many lines
of merchandise, some firms have organized two buying committees.
Activities of these committees are as varied as their composition.
Some assemble once every week, and depending upon the number
5 From an address by William C. Nugent to the Grocery Manufacturers of
America, Inc., on November 12, 1957, at New York City.
6 Ibid.
Buying Operations and Margins 79
of products to be considered, the meetings run from 1 to 6 hours.
A buying committee's decision is binding in that a buyer cannot
overrule or ignore it. The group decision, however, is not irrevo-
cable. For example, if a product is rejected, another presentation
generally can be given in a period of from 60 to 90 days after the
rejection. Some committees will review an item as many as three
times. After a merchandise group selects a product, store managers
must introduce the item. But if it doesn't sell, a manager need not
reorder. In turn, store managers in some supermarket chains can
request buying committees to adopt a product. It must be remem-
bered that the buying committee decisions involve the entire store
system and not just one store.
The results of merchandise committee decisions have been ex-
amined in several studies. One large food chain reports that its buy-
ing office has presented for consideration as many as 150 to 200 new
items per week.7 If all were accepted, 10,000 new items per year
would be added to this chain, which normally carries 4,000 items.
A study of the activities of 12 buying committees of some of the
largest supermarket chains showed that out of 496 products ex-
amined, 220 were voted favorably, 61 were deferred, and 215 were
rejected.8 In another study, the buying practices of eight chains
were examined for the period of March, 1954, to June, 1955.9 Thou-
sands of items were presented to the buyers. They in turn screened
new items and submitted only 1,433 products to the respective mer-
chandise committees. These committees disposed of the new items
as follows: 10
Rejected 987
Held for reconsideration 16
Accepted for testing 10
Recommended for special promotion
only 13
7 Weiss, Winning Chain Store Distribution for New Products, op. cit.
8 Nugent, op. cit.
9 William Applebaum and Richard Moulton, An Exploration into Reasons
Why Supermarkets Add and Discontinue Items (New York: McCall Corp.,
1956).
io Ibid.
80 Supermarketing
Accepted part of the line 29
Accepted 378
Items reviewed 1,433
In all, 69 per cent of the items presented to the committees of these
eight chains were rejected and only 26 per cent were accepted un-
conditionally.
As a corollary to this same study of the eight chains, the major
reasons for discontinuing 3,725 items from the line during this same
16-month period were: u
Per cent
Slow movement 42
Did not fulfill expectations 22
Replaced by superior product .... 15
Due to manufacturers' action . . . . 11
Other 10
Merchandise that doesn't sell is eliminated.
In cases where a decision to add an item is questioned, some com-
panies resort to consumer panels of up to 16 housewives whose opin-
ions are respected. Other companies have a designated test-store
group where product tests are regularly conducted in order to assist
the merchandise group.
This trend of employing the buying committee has shifted the
duties of a buyer from one of making decisions to one of communi-
cations. Buyers make decisions on the original screening. After this,
they generally present the product to the merchandise committee
for a group decision. In the committee the buyer carries but one
vote. In turn, this has made selling on the part of the manufacturer
more impersonal, since the salesmen seldom appear personally be-
fore the committee. The salesman merely sells the buyer and fills
out comprehensive data sheets so that the buyer in turn can do a
creditable job of presenting the proposal. Table 5-1 contains a sug-
gested form of the Super Market Institute to be filled out by the
salesman for use in the buying function. This type of impersonal
selling in turn requires manufacturers to
ii Ibid.
Buying Operations and Margins 81
1. Open up channels of communication with all executives hav-
ing a voice in new-item determination.
2. Develop new methods of presenting data to the buying com-
mittee.
3. Understand problems confronting chains and their difficulties
in adopting new products.
Supermarkets in turn must review and improve the functioning
of the committee as to operating techniques and organization in
order to make it more effective.
TABLE 5-1 *
Grocery Promotion and New Item Fact Sheet.
1. ITEM PROMOTION NUMBER
2. Date presented Buyer
3. Starting date Accepted ( date )
4. Closing date Rejected (date) .
5. Type of promotion
6. Pack and size
7. Invoice price per case
8. Freight, if any
9. Terms (cash discount)
10. Promotional allowance
11. Total cost per case
FOR BUYERS USE
This Item Reg. Mdse.
$ cost/case $
$ cost/unit $
$ suggested retail $
$ :__ % profit/unit $ : %
$ : % profit/case $ : %
12. Performance requirements for promotional allowance
13. Promotional allowance paid by: Check Off invoice Free mdse
14. Display allowance: Yes No
15. Advertising allowance: Yes No If "yes," is it in addition to promotion
and display allowance? Tear sheet to be furnished? Yes No
16. Are allowances over and above regular contract? Yes No
17. Floor stock protection on regular merchandise? Yes No
18. Will regular merchandise be picked up while deal is in effect? Yes No —
19. Display material available? Yes No Delivered to: Store Ware-
house
20. Will deal be advertised by manufacturer? Yes No If "yes," to what
extent?
National media
Local media
* Super Market Institute.
82 Supermarketing
21. Will case be marked "Deal?" Yes No How many sides?
22. Is sale guaranteed? Yes No If "yes," what basis?
23. Is price guaranteed against decline? Yes No If "yes," what limits, if
any?
24. Manufacturer's name —
25. Manufacturer's address
26. Local representative
27. Local representative's address
Additional information:
NEW ITEMS
(Complete in addition to first sheet)
1. Who handles this product in this market?
Name srp f
Name srp
Name srp
2. What advertising and promotion is being done in this market by manufac-
turer? . — _ — — —
3. What advantage is there in stocking this item?
4. If approved, when will item be available for delivery?
5. Shipping point
6. Transit time
7. Best routing
8. What quantities must be purchased to obtain lowest cost?
9. LCL price Pool car price Car price.
Minimum Minimum Minimum
10. Are drop shipments available? Yes No
Additional Information
f Suggested retail price.
Factors Involved in Selecting Individual Products
While buying committees vary as to composition and method of
operation, they generally are in accord as to the factors involved in
the selection of merchandise. Following are criteria used to judge a
product: 12
12 Address by William C. Nugent presented at the United States Wholesale
Grocers' Convention, April 21, 1957, St. Louis, Missouri.
Buying Operations and Margins 83
1. Will product return a fair dollar profit in terms of potential
volume and shelf space?
2. Does the consumer want the product?
3. What is its sales potential?
4. Is there a need for the product?
5. How will the product be advertised and promoted?
6. Are there advertising, promotional, or display allowances
available?
7. Is there a retailer incentive ( deal goods ) ?
8. Is a product of good quality?
9. Is packaging proper?
10. Is the manufacturer reliable?
11. Does competition have the item?
12. Was the product market-tested?
13. Is the product timely— in season?
14. Is the introduction timely?
15. Will it bring new customers to the store?
16. How many items are in a carton?
17. Does stock of item conflict with company policy?
18. What is the merchandise returns policy of the manufacturer?
19. What is the quantity that must be bought?
20. What discounts are offered?
A manufacturer will do well to weigh these factors in merchan-
dising his line to fit in with these requirements. There is an ever-
increasing problem of obtaining distribution of new products in the
supermarkets.
Make or Buy
Akin to the problem of product selection is the alternative of a
supermarket: whether to manufacture or to purchase. Different
stores have different policies in this regard, and it is difficult to gen-
eralize.
The industry leader, the Great Atlantic and Pacific Tea Company,
has long been an advocate of manufacturing as well as marketing.
Other large chains have entered manufacturing operations on a
84 Supermarketing
more limited scale, primarily in bakery and coffee lines. The factors
that determine whether a product should be manufactured or pur-
chased include:
1. Investment in manufacturing facilities
2. Alternative use of funds
3. Frequency of depressed conditions in the line so that advan-
tageous purchases can be made
4. Total dollar volume of the specific item
5. Total dollar volume of any one item within a line
6. Strength of brand preference for competing products
7. Strength of the emotional buying motive for the item as a re-
sult of strong brand preference (e.g., baby food)
8. Need for a yardstick to insure proper costs for the product
Policy on Packer versus Private Brands
Closely related to the problem of "make or buy" is that of brand
selection. Supermarkets got their start in the self-service sale of
nationally known brands. In today's market, however, there are both
packer and private brands crowding the shelves. Packers' brands
include nationally known products— Del Monte and Dole— as well
as little known or unadvertised brands of small and medium-sized
packers. Private labels exist at both retail and wholesale levels and
include chain brands. The private labelers acquire their merchandise
from manufacturers of various sizes. Some of the private brands also
are packed by the chain factories and sold as chain brands. Thus
chain brands can be both private brands and packers' brands.
For example, in the canned goods field, nationally advertised
products generally command a higher price than private labels or
unknown packers' brands. Competition between them is primarily
on a price basis. Major packers who know possible total demand
and supply conditions, inventory carry-over, costs, and profit possi-
bilities attempt to establish prices on their branded products, quality
considered. In turn, they are underpriced by unknown brands that
arrive on the market at various times and in varying quantities. A
retailer may never again carry a particular private brand. In bumper
Buying Operations and Margins 85
crop years, the price spread between the two tends to increase as
smaller packers literally dump their pack on the market and force
the major packers to take a new price position.
Add to this the growing importance of chain-branded goods that
are brought into the store under the broad family brand of the re-
tailer and which embrace a variety of food products, from bread to
cheese. Little advertising or promotional expense is incurred other
than that related to the store special sales. As a result of astute buy-
| ing, display policies, and tie-in of the product with the general
reputation of the store, the chain labels have been taking an increas-
ingly larger share of the market.
Factors involved in the decision to use chain brands are for the
most part similar to those involved in the decision whether to manu-
facture or to purchase. One additional feature is that funds need
not be expended for plant and equipment because chains have been
able to obtain items under their brand from small manufacturers
as well as large national sellers of branded products.
Use of Buying Associations
Food chains and large, independent supermarkets have integrated
their operations by performing more and more of the wholesale
marketing functions and even some of the manufacturing activities.
For example, approximately 80 per cent of the supermarkets obtain
their grocery products through their own central warehouses, from
9 to 10 per cent obtain their merchandise through retailer-owned
cooperatives, 3 per cent through voluntary chain wholesalers, and
7 per cent through no central warehouse or affiliation.13 As a re-
sult of their own wholesale operations, the integrated retailers
generally have been able to place merchandise in their stores at a
cost less than that of small independent merchants who buy from
service wholesalers. This has placed the large operators at a com-
petitive advantage in this high-volume, narrow-profit industry in
which a 10 cent price advantage on a case of tomato catsup is sig-
nificant. To adjust for this competitive disadvantage in buying,
13 Super Market Industry Speaks (Chicago: Super Market Institute, 1956).
86 Supermarketing
many of the independent merchants have cooperated with each
other for the purpose of purchasing primarily staple merchandise.
In 1957 there were 88,000 food stores that were members of volun-
tary and cooperative buying organizations.14 Although most of these
units were not supermarkets according to the definition established
in this text, inasmuch as their volume was under $500,000 annually,
a fair amount of their sales of $20.46 billion was transacted by super-
market members. Independent Grocers Alliance of America, com
monly referred to as IGA, is the largest of the voluntary chains. The
5,300 member stores in 1957 transacted approximately $2.9 billion
sales.15 While only 234 of their United States outlets and 20 Cana-
dian stores were classified as supermarkets, these units are reported
to have done at least 5 per cent of the retail volume of this voluntary
organization. Therefore this procurement channel must be con
sidered in a text on supermarkets even though the voluntaries were
developed to aid the smaller merchant.
There are basically two types of buying associations in the food
industry. One is the wholesale-sponsored voluntary chain, such aj
the Red and White Corporation or IGA. Red and White is owned
by its wholesale members throughout the country. Its headquarter*
in Chicago conducts many varied activities. It makes arrangements
with manufacturers to pack merchandise for its wholesalers, handles]
all quantity and net buying arrangements which are available to the
wholesalers on a national basis, and arranges for quantity discount;
on a national basis where available. Red and White also arranges!
for private labeling, furnishes advertising service, and works witl
the member stores at the retail level to improve their operation. Thcl
independent retail stores in turn agree to purchase a certain portioij
of their requirements through the respective local wholesale mem
ber. There is no requirement that an individual retailer purchase al]
requirements through this wholesaler. In the similarly operated IGl
14 Facts in Grocery Distribution (New York: Progressive Grocer, 1958), pj
F-5. i
15 Interview with Mr. Don R. Grimes, assistant to the president, IGA, Julyl
1957.
Buying Operations and Margins 87
voluntary chain, the retailer members pay 2 per cent above cost of
the merchandise to their IGA local wholesaler, who gets "cash on
the barrel head." Cash discounts vary from 1 to 2 per cent, and the
local retailer also pays drayage.
The other principal method of purchasing through an affiliation
is that of the retail-sponsored voluntary chain in which a group of
retailers form a cooperative to purchase some or all of their joint
requirements. The association is financed by its retail members,
whereas financing is done by the wholesaler in the method described
previously. Some cooperatives require members to have on deposit
funds equal to each week's purchases. In return, merchandise is de-
livered to the respective members at cost plus a slight percentage
for operation of the association plus drayage. In some cases the co-
operative even owns and operates its own warehouse facilities. Co-
operative profits paid to the members are based on the ratio of the
percentage of each member's purchases through the cooperative to
the total sales of the cooperative. This type of operation is used
primarily to procure staple merchandise.
Consigned Merchandise
The final method of acquiring merchandise is that of consignment
selling. The vast majority of the merchandise sold by supers is pur-
chased outright. It turns over rapidly, and thus inventory invest-
ment is kept at a minimum. Yet, some manufacturers and whole-
salers leave merchandise with supermarts who become the agents
for the purpose of selling the goods. Title remains with the manu-
facturer, and the super receives its compensation in the form of a
percentage of the selling price at which the goods actually are sold.
A supermarket will use this arrangement in cases in which it does
not desire to tie up capital in merchandise that may prove to be
unsalable. This situation arises primarily with unknown new grocery
products of questionable merit or nonfood items with which the
super has limited experience. It is in conjunction with the latter case,
nonfood merchandise placed in supers by rack jobbers, that consign-
88 Supermarketing
ment selling is significant. Nonfood sales in a 1958 super averaged
5 per cent of total sales.16
Basically, a rack jobber sets up display equipment in a super-
market, arranges the merchandise, services the account by exchang-
ing defective goods and rebuilding stocks, and suggests how the
store manager can tie in with national advertising. The super re-
ceives, as its compensation for rental of space and for the selling
of the product, from 25 to 35 per cent of the sales price of each
item. The margin depends upon the type of goods handled by the
particular rack merchandiser. Some jobbers carry a complete line;
others specialize in certain merchandise categories. It is possible
for a large super to be serviced by as many as ten specialized rack
jobbers in such areas as hardware, housewares, health and beauty
aids, tobacco, soft goods, toys, stationery, auto supplies, pet food,
and electrical items.
Wide diversity exists among members of the supermarket indus-
try in the use of rack jobbers. Even divisions within the same com-
pany may vary as to policy. For example, the stores of the Great
Atlantic and Pacific Tea Company in Baltimore employ an old drug
wholesale house to handle their health and beauty aids on a rack-
jobbing basis.17 The same company in Jacksonville, Florida, buys
all stationery items and health and beauty aids direct from manu-
facturers.18 As supers become more familiar with the merchandising
of nonfood items, they take over certain lines of this activity. The
items taken over from rack merchandisers generally are small in
size and moderately priced; they contain a minimum of style obso-
lescence, sell in volume, are consumed quickly, display easily, and
offer a fair profit margin. The extent of consignment selling by rack
jobbers is shown by the data in Table 4-7. Consignment sellers are
the second most important source of nonfood merchandise in supers.
1QThe Super Market Industry Speaks (Chicago: Super Market Institute,
1959).
17 "How Rack Jobbers Open Doors for Sale of Non-foods in Supers," Sales
Management, Vol. 82, no. 7, April 3, 1959, p. 44.
1* Ibid.
Buying Operations and Margins 89
GROSS MARGINS
In the preceding section, buying practices and techniques de-
veloped by this industry were reviewed. The importance of scientific
purchasing was stressed as a vital requisite to the fundamental
method of operation of this volume merchandiser. The vast array
of merchandise carried must be sold at relatively low prices in order
to represent good value to the customer. This in turn requires skill-
ful buying.
Like all retailers, a supermarket purchases merchandise at one
price and in turn sells it at a higher price. In turn, out of its sales
dollar it must obtain the cost of the merchandise and leave a bal-
ance (gross margin) to cover expenses and net profit. In order for
a balance to exist in the form of gross margin, the supermart must,
of necessity, furnish services for which its customers are willing to
pay. While a super does nothing to the fundamental form or shape
of the goods, it does give them added value in the form of time,
place, and ownership utility. For example, it enables butter pro-
duced in the summer in Wisconsin to be purchased and consumed
by a family in New York in the winter. This measure of value added
by the supermarket to the products it sells is its gross margin.
Margins differ within product lines and among individual super-
markets and various types of retailers. Markups also vary over time.
It is the purpose to examine these facets in the remainder of this
chapter.
Trends in Margins
The early supermarkets were able to operate on gross margins
varying from 10 to 14 per cent of sales.19 This was a considerable
reduction from the generally accepted 19 to 20 per cent for the chain
economy store and the independent grocers in the early 1930's.20
19 Charles F. Phillips, "The Supermarket," Harvard Business Review, XVI,
no. 2, Winter, 1938, p. 192.
20 United States v. The Great A. and P. Tea Company, U.S. Circuit Court of
Appeals, 7th district, Docket 9221, Records and Briefs, Vol. II, p. 162.
90 Supermarketing
The Great Atlantic and Pacific Tea Company strove for a 12 per
cent gross profit once it had adopted supermarket operation.21
Industry studies on gross margin first were made in the period
following World War II. The magazine, Super Market Merchandis-
ing, conducted an industry-wide survey in the years 1947 to 1956
and reported that the average gross margins were: ^
Year
% sales
1947
18.2
1948
17.7
1949
17.6
1950
17.7
1951
17.4
1952
17.9
1953
18.4
1954
18.8
1955
19.0
1956
19.6
The food chain supermarkets indicated gross margins that ranged
from 18.11 to 20.50 per cent of sales, as shown by the data in Table
4-2.
Statistics in Table 5-2 comprise the gross margins for selected
supermarket chains. The 1956 range was 16.27 for Shaffer Stores
Company and 22.98 for A. J. Bayless Markets, Incorporated. The
general trend of gross margins for the selected chains has been up-
ward in line with that for the industry. For example, between 1950
and 1956 the gross margin for Colonial Stores, Incorporated, rose
from 17.7 to 18.7 as a percentage of sales; for Food Fair Stores, In-
corporated, from 17.1 to 18.7; and for Market Basket, Incorporated,
from 18.8 to 19.6. The much publicized Schwegmann Brothers, In-
corporated, New Orleans, constantly strove for a gross margin of
only 10 per cent, but in recent years legal difficulties in connection
with fair trade laws have forced it upward.23
21 Ibid.
22 These statistics from 1947 through 1951 are from the yearly surveys pub-
lished in the May editions, 1948 through 1952, respectively, of Super Market
Merchandising. Statistics for 1952 through 1956 are from the yeariy surveys
published in August 1953 through 1957 editions of Super Market Merchan-
dising.
23 "Schwegmann Bros., Inc.," Business Week, no. 1136, June 9, 1951, p. 120.
Buying Operations and Margins 91
Forces Behind Increases in Margins
Four movements have been present since the 1930's, particularly
since World War II, which have tended to force gross margins up-
ward.
TABLE 5-2 *
Gross Margin, Expense, and Net Profit (Before Taxes) as a Percentage
of Sales for Selected Supermarket Chains for the Year 1956.
Gross
Net
Company
margin
Expense
profit
American Stores Co.
17.72
15.15
2.57
A. J. Bayless Markets,
Inc.
22.98
17.75
5.23
Century Food Markets Co.
20.54
18.59
1.95
Colonial Stores, Inc.
18.68
15.94
2.74
Daitch Crystal Dairies,
Inc.
19.91
18.36
1.55
Fisher Bros., Co.
17.01
14.23
2.78
Food Fair Stores, Inc.
18.68
15.24
3.44
Food Mart, Inc.
19.33
15.88
3.45
Grand Union Co.
19.68
16.99
2.69
Jewel Tea Co., Inc.
19.32
15.48
3.84
Kroger Co.
17.83
15.52
2.31
Lucky Stores, Inc.
20.92
17.36
3.56
Market Basket
19.63
16.34
3.29
Purity Stores, Ltd.
18.46
16.09
2.37
Safeway Stores, Inc.
17.75
15.07
2.68
Shaffer Stores Co.
16.27
15.01
1.26
Shopping Bag Food Stores
22.22
19.34
2.88
Sunrise Supermarkets Corp.
18.60
16.20
2.40
Thriftimart, Inc.
16.54
13.77
2.77
Weingarten, J., Inc.
19.84
17.13
2.71
* Calculated from statistics contained in Supermarket News Food Industries
Financial Manual (New York: Fairchild Publications, Inc., 1957).
1. The first is a tendency during and since the postwar era to ex-
pand into nonfood lines which earn a higher markup than grocery
products. For example, health and beauty aids are handled at about
28 to 31 per cent gross margin as shown by the statistics in Table
92 Supermarketing
5-3. Toys and certain of the soft goods are handled at about 30
per cent markup. Arrangements with rack jobbers return to the
super about 25 to 35 per cent of the selling price. Moreover, many
of the nonfood lines are fair traded.24
2. Second is a tendency for families to purchase better and more
convenient kinds of food products. Per capita consumption of meat
and fresh produce has increased. While margins vary depending
upon store policies, meat returns a gross margin of about 17 to 22
per cent and produce from about 25 to 31 per cent, as shown by the
data in Table 5-3. Frozen foods, including prepared dinners, cur- |
rently account for about 5 per cent of supermarket sales and re-
i
TABLE 5-3
Gross Margins in Supermarkets by Major Product Lines.
Food Town
Super Valu
Product
study *
study f
Meat
16.9%
21.3%
Produce
25.4
30.8
Frozen foods
22.2
20.3
Bakery
18.0
17.8
Paper products
23.9
23.4
Health and beauty aids
27.7
31.3
Food specialties
24.9
23.9
Beer and wine
26.3
Toys
29.5
* "The Foodtown Study," Progressive Grocer, XXXIV, no. 1, January, 1955,
p. 43.
f Facts in Grocery Distribution (New York: Progressive Grocer, 1958), p.
F-18.
turn from 20 to 22 per cent gross margin. Stores incur added expense
for stocking and displaying the assortment of frozen foods. Per
capita use of paper products has mounted, and these products gross
from 23 to 24 per cent margin.
3. Third is the fact that supermarkets in recent years have adopted
24 Milton Alexander, "Where We Stand on Non-food Merchandising," Pro-
gressive Grocer, XXXI, no. 10, October, 1952, p. 200.
Buying Operations and Margins 93
merchandising policies in line with consumer desires and habits that
necessitate more diversified inventories. Merchandise turnover,
which is a vital factor in determining retail price, has decreased.
General price policy in supers has been for the fastest movers, usu-
ally products essential to the health and well being of the family,
to carry the lowest margins. As sales movement declines, percentage
of margin usually increases. This realistic pricing philosophy builds
volume, strengthens consumer confidence in the store, and at the
same time produces a satisfactory competitive over-all store mar-
gin.25
4. Fourth is a tendency to increase customer services and com-
fort—"trade up" the supers. This trend has resulted in larger ex-
penses and, in turn, higher margins.26
Comparison of Margins with Other Retailers
Although these four pressures have tended to force gross margins
upward, supermarkets still operate at a lower over-all markup than
the chain economy stores and the small independent grocers of the
1920's. In comparison with other types of retailers, few maintain
such low markups as the supermarket, as shown by the statistics in
Table 5-4. Department and variety stores have both maintained mar-
gins of over 35 per cent or about double that for the supermarket.
The nature of the products sold, competitive conditions, and policies
of manufacturers, wholesalers, and retailers are a few of the factors
that have a bearing on the margins. But the fact that the super could
operate on such a narrow margin influenced other retailers. Those
who handled the same nonfood products easily sold in supers at-
tempted to improve their competitive position.
The average 1957 margin for a small, combination grocery and
meat market was 18.25 per cent of sales.27 This was lower than the
25 "The Food Town Study," Progressive Grocer, XXXIV, no. 1, January, 1955,
p. 43.
26 Actually margins could have been left the same and profits reduced. This
has not been the case, as will be seen in the next section on expenses.
27 Facts in Grocery Distribution (New York: Progressive Grocer, 1958), p.
F— 17.
94 Supermarketing
margin for its counterpart in the 1920,s. Supermarket margins, as
shown by the data in Table 4-2, ranged from 18.11 to 20.50 for chain
units. Because of differences in products handled by various supers,
no attempt can be made to compare their margins with those for
TABLE 5-4
Gross Margin for Various Kinds of
Retail Establishments for the Year 1954.
Type of store
Gross margin as
% of sales
Department store
Drug store
Furniture store (large)
Hardware store
Meat market
Supermarket
Variety store
36.5 ■
33.2 6
39.0 0
29.5 *
21.4 «
18.8/
37.7*
° Controllers Congress, 1954 Merchandise and Operating Results (New York:
National Retail Dry Goods Association, 1955), p. 1.
& Lilly Digest (Indianapolis: Eli Lilly & Co., 1955), p. 21.
c1954 Furniture Operating Experiences (Chicago: National Retail Furniture
Association, 1955), p. 5.
d "1954 Retail Hardware Survey," Hardware Retailer, June, 1955, p. 77.
eMeat Markets — Operating Results in 1954 (New York: Dun & Bradstreet,
Inc., 1954), p. 2.
f Facts in Grocery Distribution (New York: Progressive Grocer, 1957), p.
F-15. o
9 "Harvard Report on Variety Chains," Chain Store Age, Variety Store Man-
agers Issue, XXXI, no. 8, August, 1955, p. 65.
the small combination market. The comparison should be by product
classes. For staple food items, supers continue to be the price
leaders.
This trend of rising gross margins has resulted from policies of
supers endeavoring to furnish goods and services desired by the con-
sumer. However, the supermarket managements must not fail to
realize that they have an Achilles heel in rising gross margins neces-
sitated by increased expenses. Since 1957 the full-line but limited-
brand 'Vest pocket" super has gained popularity in the Southeast,
Buying Operations and Margins 95
Southwest, and in some areas of the Pacific Coast.28 These stores,
with from 2,000 to 4,000 sq ft of space, sell every type but not every
size or brand of product at low prices. This and other innovations in
retailing must be watched by supermarket management.
Margins by Product Lines
While the over-all gross margin of a supermarket averages about
18 to 20 per cent of the sales dollar, individual departments and
products within these departments have gross profit percentages
and dollar gross margins that vary widely from the store average.
Furthermore, sales by product lines and the resulting dollar margins
are not equally important. For example, the 1957 Harvard Study of
Food Chains disclosed the following product-line sales of the
medium-sized food chains:
ltem % total sales
Groceries 66.2
Produce 9-9
Meat 23.9
In turn, these same food chains had product-line, gross-margin per-
centages as follows:
Groceries 17.4
Produce 26.9
Meat 20.8
The percentages of total-dollar gross margin earned by product
classes for these same stores were:
Groceries 61.3
Produce 13.5
Meat 25.0
Therefore all three product classes did not contribute equally to the
store margin of 18.9 per cent. For example, if these percentages were
applied to a store doing $1,000,000 volume, the dollar gross margin
for the entire store would be $189,379. However, produce sales
28 Facts in Grocery Distribution, op. cit., p. F-4.
96 Supermarketing
would total only $99,000 but would return $24,479 gross margin.
Thus, while produce sales were only 9.9 per cent of the total volume,
they returned 13.5 per cent of the store's dollar gross profit.
A further breakdown of margins of grocery items suggested by
Progressive Grocer in its widely distributed margin card include the
following:
Margin % Item
9 or less . . . . . Butter, coffee, sugar
10-15 Eggs, cereals, soup, soap
16-19 Dog food, flour mixes, syrup
20-22 Catsup, frozen food, canned fruits
23-25 Jelly, olives, paper towels
26-28 Pie filling, waxes, brooms, pectin
29 and over .... Drug sundries, napkins, facial tissue
These margin percentages illustrate the wide variation in gross profit
among different products. Gross profit percentage is a function of
the competitive situation in the respective market areas, volume and
resulting turnover of each item, handling and display costs, and the
nature of the product. A super generally must price its products com-
petitively, and thus it is limited in its control over specific product
margins. In addition, if a product such as coffee has a high turnover
and sells in volume, the margin percentage may be small, but the
total-dollar gross margin may be large. A premium margin normally
is placed on products that are bulky and difficult to display, such
as brooms and paper goods.
Improvement in Supermarket Margins
Gross margin is the difference between the selling price and the
cost of the goods sold. Management is under constant pressure to
improve store margins in order to increase the profit possibilities. It
can do this by holding selling prices constant and reducing cost of
sales, raising selling prices generally and holding cost of sales con-
stant, raising selling prices generally and lowering cost of sales, or
concentrating effort on selling products which normally have the
largest gross margin percentages.
Any activity on the part of management that can reduce the cost
Buying Operations and Margins 97
of the merchandise which the super sells can increase the gross
margin. That is why scientific purchasing has played such a vital
role in the development of this industry. Astute purchasing is the
heart of a super's merchandising strategy. Management also must
strive to keep cost of sales down through close control of inventory
in order to prevent losses or shrinkages from accruing. Losses that
appear in inventory increase the cost of goods sold during that
period and thus reduce the dollar margin. Losses occur as a result
of:
1. Failure to get the merchandise that was purchased. This in-
volves proper inspection.
2. Excessive discounts offered to employees on merchandise
bought for their own consumption.
3. Pilferage on the part of customers, personnel, or suppliers. This
can vary from 0.35 per cent to 0.50 per cent of the sales dollar and
thus increase the cost of sales by a like amount.29
4. Spoilage or shrinkage of merchandise, particularly in produce
and meat departments.
The competitive situation in the respective trading area of a super
has a bearing on prices charged. An individual store normally may
find it difficult to raise prices above competition unless the store is
differentiated in some manner. But the merchandising skill of the
store executives can augment margins. Special promotions or sales
can be used more effectively to draw customers who buy related
merchandise not on sale and which carries larger margin percent-
ages. A store executive may be able to merchandise specific products
to advantage through knowledge of local factors and flexible opera-
tions. A product in short supply in the market may be raised in price
and return a higher margin. Merchandising skills must be developed
and employed to plan operations more completely, take advantage
of special events, promote seasonal merchandise sales and display
merchandise more effectively.
29 These figures were obtained from a letter from Mr. G. L. Mattei, District
Manager, William J. Burns International Detective Agency, to the Super Market
Institute on January 22, 1958.
98 Supermarketing
Managerial ability is important to make certain that selling prices
are not understated. This can occur if checkers undercharge for
merchandise or do not record the sale of every item. Improperly
marked merchandise can lower margins. It is vital to get the money
due the super. The proper combination of merchandising and man-
agerial skills on the part of the store executives, coupled with skillful
buying, can improve the gross margin in a super.
SUMMARY
Merchandise "well bought" can be sold at a profit. This is a cardinal
rule in the supermarket industry which purchases over $20 billion in
merchandise each year. The term "well bought" means the purchase of
merchandise that meets the needs and wants of the customer and which
can be sold at a price that reflects good value.
Trends within the industry toward larger stores and more stores under
a common ownership, coupled with the development of group purchasing
(the buying committee), have given the industry advantageous bargain-
ing power with suppliers. Furthermore, the wide use of the buying com-
mittee has resulted in a more unified merchandising program— greater
coordination of buying, selling, advertising and promotion. The role of
the buyer has changed. Although he performs executive tasks, he must
also be a communication expert, taking the manufacturer's message to the
committee. This impersonal buying has forced food manufacturers to re-
vamp their selling programs.
In turn, the margins in the supermarket industry have tended upward.
This has been brought about by four fundamental forces present in the
industry. There has been a tendency during and since the postwar era to
expand into nonfood lines that earn a higher markup than grocery prod-
ucts. Second is the tendency for families to purchase better and more
convenient kinds of food products that carry a wider margin. Third, super-
markets have adopted merchandising policies in line with consumer de-
sires and habits that necessitate more diversified inventories to be handled.
This has lowered turnover and resulted in higher margins. Finally, there
has been a tendency to increase customer services and comfort. This trend
has resulted in greater expenses and, in turn, higher margins. Yet, the
supermarket continues to afford the consumer values in its respective area
substantially better than those offered by other forms of retailing.
EXPENSES AND PROFITS
INTRODUCTION
The preceding chapter examined (1) the buying practices of
supermarkets and (2) the principles involved in the establishment
of gross margins. The purpose of this section is to continue the study
of the principles of supermarketing within the framework of an op-
erating statement. Attention in this chapter is focused on operating
expense and net profit relationships.
OPERATING EXPENSES
The third step in the plan to identify characteristics of super-
market operation that set it apart from other forms of retailing is to
study expense relationships.
At the outset, reference is made to the data in Tables 4-2 and 4-3,
which list detailed expenses as a percentage of sales for supermarket
food chains and for an independent supermart. Other expense ratios
can be found in Table 6-1 which presents operating data from the
annual surveys conducted by the Super Market Institute among its
members for the years 1954 through 1958. Akin to other retailers,
the major expense items of supermarkets are for store payroll, ad-
ministrative salaries, occupancy or real estate, advertising, and store
supplies.
Trends in Supermarket Total Operating Expense
Yearly surveys conducted by the staff of Super Market Merchan-
dising for 1947 through 1956 indicate that operating expenses as a
percentage of sales were: 1
1 The statistics for the years 1947 to 1950 are from the yearly surveys pub-
lished in the May editions, 1948 through 1951, respectively, of Super Market
99
100
Supermarketing
Year
% sales
1947
14.8
1948
14.9
1949
13.9
1950
14.3
1951
15.4
1952
15.7
1953
16.1
1954
15.8
1955
16.1
1956
16.9
These data are comparable with the total expense statistics of the
Super Market Institute figure exchange data shown in Table 6-1.
This organization reported in its 1958 study that total operating ex-
TABLE 6-1 *
Operating Statistics of Selected Super Market Institute
Members as a Percentage of Sales
for the Years 1954 to 1958.
1958 f
J957
1956
1955
1954
Sales
Cost of sales . . .
. 100.00
. 81.88
100.00
81.89
100.00
82.06
100.00
82.24
100.00
82.63
Gross profit ....
. 18.12
18.11
17.94
17.76
17.37
Expense
Store labor . . .
Advertising . . .
Store supply . . .
Store rent and
—
6.87
0.87
0.88
7.10
1.00
0.88
7.08
0.89
0.80
7.16
0.90
0.80
real estate . .
Heat, light, power .
All other expenses .
—
1.12
0.50
5.80
1.07
0.50
5.41
1.07
0.48
5.05
1.01
0.47
4.38
Total expenses .
Net profit \ .
. 16.19
2.20
16.04
2.26
15.96
2.13
15.37
2.56
14.72
2.46
* Facts in Grocery Distribution (New York: Progressive Grocer, 1959), p.
F-21.
f The Super Market Industry Speaks (Chicago: Super Market Institute,
1959), p. 17.
X These statements do not include other income and expense items. There-
fore net profit cannot be added to total expense to obtain gross margin.
Merchandising. Data for 1951 through 1956 are found in the August editions,
1952 through 1957, respectively, of the same magazine.
Expenses and Profits 101
penses ranged from 14.54 to 17.49 per cent of sales for the middle
range of respondents and 16.19 per cent for the typical supermarket.2
The expense rates as a percentage of sales for certain supermarket
chains for 1956 are shown in Table 5-2. These rates ranged from a
low of 13.77 for Thriftimart, Incorporated, to a high of 19.34 for
Shopping Bag Food Stores. The diversity of characteristics of stores
within the industry, including the method of operation and lines
stressed, had a direct bearing on these ratios.
The expense rate for supers in the postwar period was consider-
ably larger than that for supermarkets in the late 1930's. And the
expense trend each year has continued upward. The rise is attributed
to improved customer shopping conveniences and services and to a
higher percentage of sales expended for salaries and wages. It was
not unusual for the expense rate of supers in the 1930's to average
10 to 11 per cent of sales.3 In 1941 the entire supermarket operation
of the A & P worked on a 10.51 expense ratio.4 However, the expense
rate for supers in recent years has still been lower than that for the
grocery stores and combination markets, including the A & P econ-
omy stores of the early 1930's.
Comparison of Total Expense with Other Retailers
The general trend of total expense in a supermarket has shown
consistent increase over the years. Yet, the supermart is still a low
cost marketer when compared to other types of retailers. The total
expense rate of the supermarket industry compared with that of the
variety and department stores is substantially lower; in fact, it is
about 50 per cent less, as illustrated by statistics in Table 6-2. Ex-
penses vary according to the type of business, lines handled, and
operational policies, to name but a few factors. But the low super-
market rate becomes even more significant when nonfood items that
are stocked by similar stores, including supers, are considered.
2 The middle-range figures are the values at the one-quarter and three-quarter
points from the array of data listed, from the smallest to the largest. Extremes in
the top and bottom quarters are thus omitted.
3 United States v. The Great Atlantic and Pacific Tea Company, U.S. Circuit
Court of Appeals, 7th District, Docket 9221, Records and Briefs, Vol. II, p. 194.
4 See Table 8-7.
102 Supermarketing
TABLE 6-2
Operating Expenses as a Percentage of Sales for Various
Types of Retail Stores for the Year 1954.
Expense
Type of store
% of sales
Department store
33.50 »
Drug store
27.80 &
Furniture store (large)
37.44«
Hardware store
27.55 *
Meat market
20.00 •
Supermarket
15.80 /
Variety store
32.90 a
° Controllers Congress, 1954 Merchandise and Operating Results (New York:
National Retail Dry Goods Association, 1955), p. 1.
b Lilly Digest (Indianapolis: Eli Lilly & Co., 1955), p. 21.
0 1954 Furniture Operating Experiences (Chicago: National Retail Furniture
Association, 1955), p. 5.
d "1954 Retail Hardware Survey," Hardware Retailer, June, 1955, p. 77.
e Meat Markets — Operating Results in 1954 (New York: Dun & Bradstreet,
Inc., 1954), p. 2.
f Facts in Food Distribution (New York: Progressive Grocer, 1955), p. F-17.
o "Harvard Report on Variety Chains," Chain Store Age, Variety Store Man-
agers Issue, XXXI, no. 8, August, 1955, p. 52.
Comparison of Major Expense Items by Retailers
Data in Table 6-3 present major expense breakdowns for certain
types of retail stores, including supermarkets. The four most sig-
nificant expense items confronting retailers, as shown by the sta-
tistics in Table 6-3 are (1) employees' salaries, (2) owners' or ad-
ministrative salaries, (3) occupancy, and (4) advertising, publicity,
and promotion. In almost every instance the supermarket was able,
more than any other type of retailer shown, to operate at a consider-
ably lower expense rate as a percentage of sales.
Owner or administrative expense in supermarkets was 1.92 per
cent of sales in 1954 compared with 7.7 per cent in drugstores, 5.8
per cent in variety stores, and 7.8 per cent in department stores for
the year 1954. Simply, supermarkets are geared for large-volume op-
eration, and they require a small percentage of the sales dollar for
Expenses and Profits 103
supervision. Operations are routinized, sales are largely on a self-
service cash basis, and a high degree of division of labor is obtained.
Efficiencies through central management in chain supermarts have
been attained. Management at the store level in chains generally is
paid a fixed salary plus a small percentage of sales above a set goal.
Local management emphasis is on volume.
Similarly, self-service, division of labor, and large-volume opera-
tion have kept employees' salaries as a percentage of sales smaller
than those paid by most types of retailers, except the small stores
where the owner does most of the work personally. In the larger
TABLE 6-3
Major
Operating Expenses as
a Percentage of Sales for
Certain Types of Retail Outlets.
Meat
market t
(complete
Depart-
Hard-
or partial
Super-
Drug
ment
Variety
ware
self-
Expense
market a
store b
store c
store d
store e
service)
Administration
0.78 to 1.26
7.70
18.40 o
17.50 o
17.75 o
6.40
Employees'
salaries
5.24 to 5.89
10.60
—
—
—
6.40
Occupancy
0.82 to 1.01
2.40
6.10
5.90
2.45
2.70
Advertising,
promotion,
publicity
2.93 to 3.07 ^
—
4.30
0.40
1.40
0.70
a Facts in Grocery Distribution (New York: Progressive Grocer, 1958), p.
F-18.
» Lilly Digest (Indianapolis: Eli Lilly & Co., 1954), p. 62.
c Controllers Congress, Merchandising and Operating Results (New York:
National Retail Dry Goods Association, 1955), p. 2.
d "Harvard Report on Variety Stores," Chain Store Age, Variety Store Man-
agers Edition, August, 1955, p. 62.
e "1954 Retail Hardware Survey," Hardware Retailer, June, 1955, p. 77.
f Meat Markets — Operating Results in 1954 (New York: Dun & Bradstreet,
Inc., 1954).
o Administration and employees' salaries are included under one classification.
ft This includes trading stamps of approximately 2 per cent of sales. Advertis-
ing expense alone for the 1954 typical super was reported at 0.87 to 1.02 per
cent of sales. Only 36 per cent of the supers offer trading stamps.
104 Supermarketing
super operations, personnel departments have been established to
hire, train, set job descriptions, and determine promotion, transfer,
and layoff policies. Most operations especially train the check-out
girls through whom contact with the public is maintained. Not only
are trained check-out girls more efficient from the use of equipment
and error standpoints, but the consumer receives faster service.
Variety and drugstores had employees' salaries expressed as a per-
centage of sales of 11 and 10.6 per cent, respectively, for 1954; super-
markets have averaged between 5 and 6 per cent. With only 55 per
cent of department store employees active in selling, their compen-
sation alone in 1954 was 7 per cent of sales.5
The low percentage expenditure for salaries and wages has been
aided further by simplifying and eliminating work. Manufacturers
perform some of the retail functions. Supermarkets are one of the
few retailers that require manufacturers to do this. Baby food man-
ufacturers and biscuit bakers, to name but two, have taken on such
functions as ordering, stocking shelves, keeping merchandise clean,
and arranging displays. Unions oppose this practice.
The policy of self-service obviously requires the customer to take
over some of the functions of the clerk. Not only has this practice
been successful in grocery operation (by definition, the grocery di-
vision of a supermarket must be self-service), but the principle has
spread to other departments within the supermarket. In 1950 a study
by the research staff of the Super Market Institute reported 8 per
cent of its members operated completely self-service stores.6 By
1958, 57 per cent of all supermarkets were on a completely self-
service basis in all major departments.7 The meat department is now
fully self-service in 88 per cent of the supermarkets, with most of
the remainder semi-self-service. Only 2 per cent of the meat depart-
ments are still operated on a complete service basis. The produce
department is the principal division not operated on a full self-
service basis.
5 Controllers Congress, 1954 Merchandise and Operating Results (New York:
National Retail Dry Goods Association, 1955), p. 21.
6 The Super Market Industry Speaks (Chicago: Super Market Institute,
1951), p. 17.
7 Ibid., 1959, Part II, p. 9.
Expenses and Profits 105
Occupancy or real estate cost is the third significant expense item
faced by retailers. This cost as a percentage of sales also favors the
supermarket type of operation. Data in Table 6-3 indicate that the
typical supermarket expended 0.82 to 1.02 cents out of every sales
dollar for occupancy as compared with a minimum of 2.4 cents for
all other types of stores. This does not mean necessarily that super-
markets obtain cheaper dollar rental. In some cases the super has
been given a rental advantage where the mart is the key store in a
shopping center. However, the low percentage of the sales dollar
expended for rent primarily is the result of their policy to exploit
customer traffic to the fullest so that increased volume can reduce
rental expense as a percentage of sales.
Advertising, publicity, and promotion for a typical supermarket
shown by the data in Table 6-3 ranged from 2.93 to 3.07 per cent of
the sales dollar. Of this, advertising itself ranged from 0.87 to 1.04
per cent. Studies since 1950 made by the Super Market Institute
indicate that slightly under 1 per cent of every sales dollar is spent
for advertising. Expenditures by media are shown by the figures in
Table 6-4. The over-all expenditure of less than 1 per cent of the
TABLE 6-4 *
Advertising Expenditures by Media for the Supermarket
Industry as a Percentage of Total Dollar
Ad Expenditures for the Year 1956.
% of total
Medium
expenditure
Newspaper
67.0
General promotion (door prizes,
civic drives, etc.)
7.5
Circulars
6.9
Television
6.6
Radio
4.9
Display posters
3.4
Direct mail
3.1
Magazines
0.6
Total
100.0
* "Where Advertising Dollars Went in 1956," Super Market Merchandising,
XXII, no. 11, November, 1957, p. 68.
106 Supermarketing
sales dollar is primarily for newspaper ads, which commanded 67
per cent of the ad funds. Supermarts compare favorably with de-
partment stores, which spend about 2.6 per cent of the sales dollar
for newspaper costs alone.8
However, this figure of slightly less than 1 per cent of the sales
dollar does not give a true picture of supermarket advertising vol-
ume because of the cooperative advertising deals offered supers,
particularly the large chains. Food manufacturers have agreed to
sponsor ads and have paid the cooperating store for its portion, fre-
quently at the national newspaper rate. The local store can arrange
for the ad and pay the media at the local rate. Thus supers have not
only passed on to the manufacturer part of the advertising expense
but in addition have found a source of added income as a result of
the difference between the national and local media rates. On the
average, the local rate is 50 per cent less than the national rate on
weekday newspaper ads.9 Supermarkets feel they are entitled to this
allowance inasmuch as they perform some of the advertising func-
tion. Manufacturers' cooperative advertising and advertising allow-
ances come under the Robinson-Patman Act, which holds in sub-
stance that whatever allowances a manufacturer offers to one dealer
must be proportionally available to all other comparable dealers of
that product in the same competitive market and must be a bona fide
allowance for advertising and not merely an additional trade dis-
count. Cooperative advertising with all its implications has created
vast problems among food manufacturers, supermarkets, and pub-
lishers.
Trading stamps have become the largest promotion item in the
supermarket industry. While not all the stores issue stamps, this
expenditure in a typical super averages slightly above 2 per cent
of the sales dollar. Other forms of promotion, publicity, and adver-
tising are practiced by nonstamp stores; some have contended they
sell for less than stamp stores.
8 Controllers Congress, 1954 Merchandise and Operating Results, op. cit.,
p. 2.
9 Otto Kleppner, Advertising Procedure (Englewood Cliffs, N. J.: Prentice-
Hall, Inc., 1950), p. 297.
Expenses and Profits 107
Governmental agencies, universities, and business have endeav-
ored to study this nebulous concept of trading stamp impact on
margins, prices, and restraint of trade. Factors for successful use
of stamps have been discussed before.10 No clear-cut results are
available. Some supers have found the needed volume to use this
tool successfully and have spread fixed and semifixed costs over
larger sales. In addition, some stamp users also shifted from other
kinds of advertising or promotional effort. This cyclical promotion
tool appears to have passed its zenith at this time, however, with a
drop in its use reported for the second consecutive year. About 35
per cent of the supers used stamps in 1958 according to Progressive
Grocer. The failure of supers to attain needed volume increase ap-
parently was a major factor in the end of this boom. Stamp-giving
supers have made no volume headway at the expense of the non-
stamp supermarkets in the past three years, as shown by the data
in Table 6-5. The movement could be revived if one or several of
the large chains adopted their use.
TABLE 6-5 *
How Stamps Affect Supermarket Sales.
Average %
Average %
sales gain in stores
sales gain in stores
Years
giving stamps
not giving stamps
1954 vs. 1953
18
12
1955 vs. 1954
25
12
1956 vs. 1955
13
14
1957 vs. 1956
14
14
1958 vs. 1957
10
12
* Facts in Grocery Distribution (New York: Progressive Grocer, 1959), p.
F-ll.
Functional Expense Analysis
Diversity exists in the operating statistics of member stores of the
supermarket industry owing to size of stores, size of concerns, mer-
chandise handled, location, method of operation, and merchandising
10 The use of trading stamps was discussed in Chapter 4.
108 Supermarketing
policies. Still, operating data from surveys and studies made by the
four major statistical sources in this industry— Super Market Insti-
tue Figure Exchange, Super Market Merchandising, Progressive
Grocer, and the Harvard Study of Food Chains— are generally in
accord with each other. In the postwar period, total operating ex-
penses have been on the increase in the supermarket industry.
It is imperative to know in what areas and for what reasons ex-
penses are increasing. This can be ascertained by two basic types
of distribution cost analyses. One is the familiar examination of op-
erating statements, in which expenses are listed and then analyzed
by the nature of cost items or the object of expenditure. Reference is
made to the operating statistics of selected food chains shown in
Table 4-2. Expenses expressed as a percentage of sales are itemized
by the nature of the cost such as payroll, real estate, and supplies.
Changes in specific items over the years can be detected. For ex-
ample, data in Table 4-2 indicate that payroll, real estate costs, fix-
ture and equipment costs, and advertising expenses in recent years
have been taking a larger share of the sales dollar.
These increases in expenses could be attributed to added func-
tions or activities assumed by the supermarket chains. Therefore a
second type of distribution cost study was undertaken in the Har-
vard Report, namely, an analysis of functional operations per-
formed. In the department store field, the Controllers' Congress of
the National Retail Dry Goods Association has set up five major
functional divisions of expense: administration, occupancy, public-
ity, buying, and selling and delivery. The classification set forth in
the Harvard Study of Food Chains includes the store or selling func-
tion, warehousing or storage function, transportation, and adminis-
tration and general expense. These functions are of importance for
food chains faced with store, warehouse, and transportation prob-
lems. An individual super may not find this breakdown of value.
Changes in these functions over the years can be detected by a
study of the data in Table 6-6. A breakdown of these classifications
by the specific expense items for the year 1958 is shown by the sta-
Expenses and Profits 109
tistics in Table 6-7. Food chains have kept their storage, transporta-
tion, and general and administrative costs in line from 1950 to 1958.
In fact, efficiencies in the transportation function are shown by the
statistics, with transportation costs dropping slightly almost yearly
from 1.07 cents out of the sales dollar in 1950 to 0.91 cents in 1958.
Lower transportation costs are accounted for by fewer and larger
stores better located geographically. Warehousing costs have been
aided by better handling, modern equipment, new buildings, and
supervision. The larger sales over which to spread overhead have
benefited the ratios of general and administration expenses.
It is in conjunction with the stores, the selling function, that ex-
penses have mounted. Store expense rose from 10.85 per cent of
the sales dollar in 1950 to 13.58 per cent in 1958, as shown by the
data in Table 6-6.
In turn, the specific store expenses that principally have accounted
for this increase were store payroll, real estate costs or occupancy,
equipment costs, advertising, and supplies. Payrolls have increased
faster than sales. This results from higher hourly wages, primarily
for the same type of work, in line with the industrial wage-rate pat-
tern. It does not appear as though die industry has added a different
quality of labor performing new and specialized services which re-
quire a boost in wages per hour; for example, in areas such as pre-
packing meat. Real estate costs as a percentage of sales have risen
as a result of higher store construction costs, mounting interest rates,
increased real estate taxes, more elaborate stores, larger parking lots,
and higher land costs. Even when a super does not own its own
buildings, it faces increased rental charges for new locations inas-
much as the owner passes on increased costs. Similarly, new equip-
ment not only tends to make older fixtures obsolete but costs more
than the item replaced so that depreciation charges are higher. The
sharp increase of advertising expenses is attributed primarily to
certain respondents of the survey adopting trading stamps in this
period. Other factors that have led to increased advertising costs are
higher space rates, increased use of radio and TV time, and larger
a «5
•3 *n
2 C5
-G _
U
o
*s *•
_ i— (
*d
V »3
o c3
#
,2 ®
CO
Qi ^
<s>
M o
Mm -G
W
o *-
►J
■» fc
5
•s*2
2 »
fl "a
-5 «
© «4_,
s °
— i a>
a o
a >m
1(2
110
i-l in t> i> cq
in cq r-j © ©
od o'hhcj
O ON09O
in oqnoq
1> O rH rH* cq*
1> rH TJH CO ©
© o ph o ©
rH © cqin
lO rH O rH
h h h cq
CONHN
CO rH © ©
r-A f-A rA c4
010 05CD
co rH © ©
CQ rH o ^
WW5 10H
CO rH © ©
dndcq
co cq rH cq o
CO C^ rH © ©
©' COHOH
»-h co cq rH w
in in h co oq
© CO* rH ©* r-A
T3
<s
CO
1
>
c °
o
JT3
.5 s « s
™ (/> f Pi W
rH O
rH T}<
o o
o in
in cq"
i- o
rH CO
t- ©
co co
in cq
00 ©
o fr-
ee" cq'
o co
co cq
co cq
© r-i
co cq
t- cq
co in
TJH o
i> cq"
C3 U
If
to
u
-3
Si.
o
a
as
Fbb
Wco
PQ »
Is
# co"
in
Expenses and Profits 111
TABLE 6-7 *
Itemized Expenses Classified by Functions for Selected Food
Chains as a Percentage of Sales for the Year 1958.
Adminis-
Trans- trative and
Item Store Warehouse portation general
Payroll
6.86
0.54
0.21
1.41
Real estate cost
1.27
0.16
0.01
0.06
Equipment expense
Utilities
1.10
0.54
0.09
0.04
0.16
0.11
0.01
Supplies
Advertising
Travel
Insurance
0.91
2.39
0.01
0.16
0.01
0.02
0.05
0.09
0.09
0.03
Taxes
Services purchased
Miscellaneous
0.37
0.32
0.07
0.04
0.02
0.16
0.01
0.05
0.26
Total
13.93
0.97
0.62
2.11
* Wilbur B. England, Operating Results of Food Chains in 1958 (Cambridge,
Mass.: Harvard Business School, Bulletin No. 156, 1959), p. 20.
promotional costs involved in the introduction of new stores. Fur-
thermore, nonstamp users have intensified their promotional activi-
ties to retain their respective market shares.
Increased costs of supplies have resulted from higher paper costs,
changes in store packaging policies, and wider use of office supplies
such as punch cards. As a result, supermarket food chains have been
forced to increase gross margins; but this increase has not been suf-
ficient to offset higher costs, with the result that net operating profit
before taxes has tended to decrease for these chains.
Although these results are for food chains, similar results can be
assumed for smaller concerns and independent supermarkets which
face the same slowly rising costs of doing business. Yearly surveys
conducted by the Super Market Institute indicate that the majority
of members report encountering continually higher costs over the
past decade.
A third type of distribution cost study, namely the manner in
112 Supermarketing
which the distribution effort is applied, is considered in the next
section under expense control. This involves expense studies of
product lines, customers, or other segments of the business and is
exemplified by a study to determine net operating profit for the
dairy department.
Expense Control
The supermarket industry has been faced almost since its incep-
tion with gradually rising costs of operation. Concomitant with the
rise in costs has been added services furnished and activities as-
sumed by this industry. However, in a narrow profit-margin field
such as this, the trend could prove to be especially dangerous if in-
creased costs resulted from services not desired or if no improvement
in services were offered. In time the supermarket conceivably could
lose its competitive position or see its profits erode if consumers be-
lieved the value added to the goods by the supers was not worth
the prices charged. Marketing is dynamic in nature; nothing is so
certain as change. Therefore control of operating expenses is vital.
The wide diversity among industry members makes it difficult to
generalize as to policies adopted to gain effective control. However,
the following practices have been instituted to some degree by mem-
bers of the industry in an effort to keep expenses under control.
Expense budgeting, A budget is a plan of expected future oper-
ations. A complete budget should include anticipated sales, margins,
expenses, and profits. It should serve as a guide or a control mech-
anism for management. A budget is not only a tool for large organi-
zations but also a useful device for the small concern. The activity
of preparing a budget is at least as important as the budget docu-
ment that results because the activity itself forces formalized plan-
ning. This may be even more significant for the smaller concern,
which is often less likely than a large organization to formalize its
plans. An example of the budget program of one chain is shown
below. This program also can be adopted with some modification
by the smaller concern.
In the short run, at the most a year, an expense budget can serve
Expenses and Profits 113
as a valuable tool to supermarket management. It can point out dis-
crepancies between actual and anticipated results, illustrate the
need for adequate records, and show the information that must be
Outline of Budgeting Procedure *
Step 1: Data to be furnished to the divisions.
DATA SOURCE
a. Last year's experience for period to
be covered Accounting department
h. Over-all tonnage goals for existing
stores General manager
c. Store expansion and renovation
plans including target dates General manager
d. Commodity price forecast Market research department
Step 2: Preparation of divisional budgets.
a. Each division head shall submit to the chief budget officer budget
figures broken down by department and by account classifications as
listed on a standard budget form. An appropriate text explaining the
bases for the budget projection is to accompany the form when sub-
mitted. The budget figures, for the present, shall be on a quarterly
basis. Sales, gross profit, salaries, and wages shall be further broken
down by four-week periods.
b. The chief budget officer shall review the divisional budgets, con-
solidate them into an over-all company budget, and submit it with
adequate explanatory text to the general manager.
Step 3: Approval of budget by general manager.
a. The general manager will review the budget and text and will indi-
cate such modification of plans as he deems advisable.
b. The approved budget shall be presented to the division heads at a
special meeting chairmanned by the general manager.
Step 4: Evaluation of results versus plans.
a. Each division head shall prepare and submit to the chief budget
officer a review and evaluation of the division's results versus plans
on a four- week and quarterly basis.
b. The chief budget officer shall prepare a consolidated review and
submit it to the general manager, who after studying it, will indicate
* Lloyd B. Tarlin, "How a Super Market Chain Started Budgeting," Super
Market Merchandising, XXI, no. 7, July, 1955, p. 65.
114 Supermarketing
what adjustments and action are to be taken to achieve the desired
goals. The general manager will choose the time and means for con-
veying his views to the division heads.
readily available to make merchandising decisions. It can make store
managers on the firing line cost-conscious. It can aid in the move-
ment toward decentralization of management by illustrating the
need for profits as well as volume. While the supermarket is geared
to volume operation, top management does not appear to have en-
trusted sufficient responsibility to store managers.
Establishment of standards. More and more the management of
a super needs guide posts by which to judge marketing efficiency.
Some of the standards already developed include:
Sales per square foot of selling space
Tons of merchandise handled in warehouse operation per man-
hour
Sales per employee
Transactions handled per check-out stand per hour
Labor turnover
Analysis of sales per day of week and per hour of the day
Average sale per customer
Expense per linear foot of display space
Itemized expenses expressed as a percentage of sales
Cost of handling various product lines
Sales velocity by item
Profit per item
For example, various company and industry standards are published
in trade magazines and by the trade association Super Market In-
stitute. A survey of the industry in 1957 revealed that the average
sale per customer was $4.85 and average weekly sales per square
foot of selling area were $3.00.n A study of warehouse costs dis-
closed that from 1947 to 1956, tons of merchandise handled per
11 "Super Market Institute Mid- Year Gives Hard Facts on Markets," Super
Market Merchandising, XXII, no. 1, January, 1957, p. 101.
Expenses and Profits 115
man-hour rose from 1.06 to 1.87 tons.12 In the 1958 study of opera-
tions conducted by the Super Market Institute, it was disclosed that
sales per full-time employee equivalent averaged $41,200, or 4 per
cent higher than 1957. 13 This figure is based on all employees in a
company as well as the assumption that two part-time employees are
equivalent to one full-time worker. Sales per man-hour were $22.97,
compared with $21.66 a year earlier. Typical sales per square foot
of selling area were $3.71 a week compared with $3.77 in 1957.
Akin to the setting of standards is the problem of effective use of
labor, the major expense item. Concerns have made job analyses, set
up job descriptions, and developed division of labor to a high de-
gree. Efforts have been made to reduce employee turnover.
Fixed cost-volume relationship. From its inception the super-
market has been geared to volume operation. Store managers have
been rewarded by salary incentives for developing volume, with the
usual arrangement being a fixed salary plus a percentage of sales
above a predetermined amount. Large volume has been its basic
tenet so that the multitude of fixed costs which are present can be
spread over a more substantial dollar sales. The fixed costs are not
reduced dollarwise, but when expressed as a percentage of a larger
sales volume, they appear as a lower ratio and of lesser importance.
The whole concept of profitable use of trading stamps as a promo-
tional tool was suited for supers because it was predicated on in-
creased volume so that fixed costs such as rent, insurance, fuel, de-
preciation, telephone, and other utilities could be spread over a
larger volume. Simply, a super faced with a contractual rental obli-
gation of $10,000 per year while transacting a $1,000,000 volume can
reduce its rental as a percentage of sales from 1 per cent to Vz per
cent if sales can be doubled. However, as vital as this principle is,
emphasis also should be placed on more responsibility at the store
level for expense control. This necessitates higher caliber, better
educated, and more skilfully trained managers.
12 "How to Fight Costs and Win," Super Market Merchandising, XXIII, no.
4, April, 1958, p. 64.
13 Super Market Industry Speaks, op. cit., 1959, p. 17.
116 Supermarketing
Cost reduction. In supermarkets, reduction of expenses has been
centered in six major areas. These include labor, warehouse and
transportation, general operations, store department operations, back
room, and construction maintenance. These divisions are more suit-
able for expense analysis of both large and small supermarket con-
cerns than are the functional divisions set forth by the Harvard
Study of Food Chains. Store operators who desire a comprehensive
check list of 119 ways to reduce costs are referred to Appendix A.
Labor is the major expense item in a retail store. All executives
in the firm must be in favor of a sound personnel program in order
to obtain the greatest productivity from the employees. Every super-
visory person must be sold on the idea of labor performance. Care
must be taken in the selection of workers. Employees should be
trained for their respective tasks. If management expects to obtain
the superior profits of effective merchandising, then store managers
and key personnel must be trained to be merchandisers. Whatever
is expected of the workers should be transmitted in the form of work
schedules, which should include a man-hour program and the pay-
roll percentage of sales of each department. This is the result of job
analysis. The desired goals of productivity should be set forth. Every
effort should be expended to maintain interest and show the progress
being made. The employees should be made part of a team effort.
Rewards should be commensurate with performance.
The original premises of self-service in supermarket operation
substantially reduced labor expense. It brought the customer "into
the act" by taking over some of the functions of the clerk. Since then,
self-service has spread to most departments of the super. Another
factor that reduced labor expense was the requirement that manu-
facturers perform some of the retail functions such as ordering,
stocking shelves, keeping merchandise clean, and arranging displays.
Finally, supers have passed on to the customer some of the carry-
out and delivery activities. For example, in many areas customers
can cart their purchases home free or pay extra to have them de-
livered by an external delivery concern. In either instance, no entry
appears in the expense records of the supermarket. The decision
rests with the customer as to whether it is to be a cost to the con-
Expenses and Profits H7
sumer. In a department store, however, delivery appears in the store
records as a cost.
Warehouse and transportation costs have been subject to intensive
study to determine optimum size and layout of warehouses, order-
handling systems, routing, and scheduling. The number and type of
tractors and trailers, if any, must be scrutinized to obtain maximum
use. Another facet open for review is the use of mechanical loaders
to stock merchandise on shelves.
General operations embrace systems and devices to make the ad-
ministration of the store more efficient. These range from a study
of bag sizes for packing customer purchases in order to eliminate
the odd sizes, to a review of insurance in force by a consulting firm.
Store department operations include systems, devices, and rou-
tines to make the operation of an individual department more effi-
cient In the produce department, for example, racks for display can
be filled substantially quicker by the use of two hands rather than
one. Or, in the meat department, specific sizes of cellophane or other
wraps should be established and only those sizes should be kept on
hand.
Back-room expenses include the behind-the-scenes costs. These
can best be kept in hand by centering responsibility in one person
and keeping that individual or a replacement for him there at all
times. This assures greater productivity as well as reducing inven-
tory shortages.
Construction and maintenance costs include expenses involved in
modernization, repair, and maintenance of facilities. These range
from protection of shopping carts, by assuring their proper use, to
the channeling of all orders for equipment servicing through central
purchasing at headquarters.
Distribution costs studies should be conducted in these six major
areas of expense control to make certain maximum efficiency of op-
erations is being obtained.
PROFIT
In the preceding section, the operating expenses of a supermarket
were examined. It was shown that management in this industry faces
118 Supermarketing
a severe challenge from constantly rising costs that are tending to
erode profits. The latter— profit— is the residue left from total sales
after the goods sold and the operating expenses are taken into ac-
count. The term profit or net profit refers to earnings before income
taxes. Profits before taxes are used in order to discern the operating
status without having to consider the changing income-tax structure.
Trends in Net Profit
There are three major reasons for going into business, namely,
altruistic purposes, desire for power, and profit. Of these, the major
motive is profit. The results of yearly surveys conducted by the staff
of Super Market Merchandising for 1947 through 1956 indicated
that the average profit of the reporting supermarkets as a percentage
of sales was: 14
Year % sales
1947 3.7
1948 3.7
1949 2.8
1950 3.4
1951 2.0
1952 2.2
1953 2.2
1954 3.0
1955 2.9
1956 2.7
Net profits expressed as a percentage of sales for the selected
supermarket chains in 1956 are shown in Table 5-2 to range from a
low of 1.3 per cent for Shaffer Stores Company, a Pennsylvania chain,
to a high of 5.2 per cent for A. J. Bayless Markets, Incorporated,
an Arizona chain.15 For the years in the postwar period, the rate of |
return for the companies has ranged generally from 2 to 5 per cent
14 These statistics are from the yearly surveys published in May editions, 1948
through 1951, respectively, of Super Market Merchandising. Statistics for 1952
through 1956 are from the yearly studies published in August editions, 1953
through 1957, respectively, of Super Market Merchandising.
15 Diversity of ownership and operating policy within the industry plus non-
standardized accounting practices have resulted in wide variation in the re-
ported net profits of individual companies. The principal variation has been in
the methods of reporting returns to the owners; that is, whether it be reported
as salaries or profit.
Expenses and Profits 119
of sales; statistics from these selected companies generally indicate
a fluctuating but slightly decreasing earnings trend measured as a
percentage of sales. However, dollar profits of the individual con-
cerns have increased along with the sharp rise in sales in the postwar
period.
The operating results of the Harvard Study of Food Chains and
the yearly surveys of the Super Market Institute shown in Tables 4-2
and 6-1, respectively, indicate that in the 1950's there has been a
rising expense trend, and while gross margins have tended upward,
they have not kept pace with expenses; hence net profits have suf-
fered.
Comparison of Profit with Other Types of Retailers
Profits of supermarkets have been shown to vary between 2 and
3 per cent of sales. Statistics in Table 6-8 indicate that drug, variety,
TABLE 6-8
Net Profit as a Percentage of Sales for Various
Types of Retail Stores for the Year 1954.
Net profit as
Type of store
a% of sales
Department store
4.20 o
Drug store
5.40 &
Furniture store (large)
1.58 «
Hardware store
1.90 *
Meat market
1.40 «
Supermarket
3.00/
Variety store
5.32 9
a Controllers Congress, 1954 Merchandise and Operating Results (New York:
National Retail Dry Goods Association, 1955), p. 1.
& Lilly Digest (Indianapolis: Eli Lilly & Co., 1955), p. 21.
c 1954 Furniture Operating Experiences (Chicago: National Retail Furniture
Association, 1955), p. 5.
d"1954 Retail Hardware Survey," Hardware Retailer, June, 1955, p. 77.
eMeat Markets — Operating Results in 1954 (New York: Dun & Bradstreet,
Inc., 1954), p. 2.
f Facts in Grocery Distribution (New York: Progressive Grocer, 1955), p.
1-17.
9 "Harvard Report on Variety Chains," Chain Store Age, Variety Store Man-
agers Issue, XXXI, no. 8, August, 1955, p. 65.
120 Supermarketing
and department stores return a much larger profit percentage than
the supermarket. Both variety stores and drugstores earned over 5
cents in the form of profit out of every sales dollar. Yet, this modest
2 to 3 per cent return for a super is significant when viewed against
the large dollar volume of a supermarket.
Other measures of profitability, such as profits as a percentage of
net worth and earnings on total assets, are considered in the follow-
ing chapter.
SUMMARY
From its inception, the supermarket profit was predicated on volume
operation. Low price policies, display techniques, advertising, and pro-
motion were cornerstones for substantial sales. Expenses of supers to at-
tain this volume have risen steadily since the 1930's, despite efforts to
keep them in hand. These included the devising of policies such as self-
service and simplified stock handling to reduce expenses as a percentage
of a given sales volume, the developing of a large volume against which
the more fixed expenses such as rent and utilities could be allocated, and
the instituting of cost-reduction programs. However, store management
has centered its attention on volume and has left unrealized a source of
possible earnings through closer control of expenses at the local level. The
net profit that has filtered down has appeared modest when expressed as
a percentage of sales. While there has been a slight lowering of profit
margins, the modest percentage return is significant when viewed against
the large dollar volume per store.
FINANCIAL FACTORS
INTRODUCTION
In the previous three chapters, internal operating procedures and
policies developed by supermarket management were examined in
the framework of an operating statement. Selling techniques, buy-
ing practices, establishment of margins, promotional strategy, and
expense analysis and control were the major operating principles
examined. It is the objective of this chapter to continue the study of
internal supermarket characteristics that have led to the success of
the industry, except that in this section, financial aspects are scru-
tinized in the framework of a balance sheet. The approach used in
this chapter to study the financial characteristics was necessitated
by the general failure of the supermarket industry to publish repre-
sentative balance sheet statistics.
GENERAL ASSET STRUCTURE OF A SUPERMARKET
The finances required to open a modern supermarket have under-
gone considerable change from the days of Roy O. Dawson and
Robert Otis, who started the Big Bear with $10,000.1 Consider the
case of Food Fair Stores, Incorporated, an expanding and progres-
sive supermarket chain of 362 units as of January 31, 1959. Accord-
ing to Meyer Marcus, vice president, a modern suburban unit, oc-
cupying from 12,000 to 15,000 sq ft of space and grossing $1,000,000
to $1,500,000 yearly, required: $65,000, inventory; $65,000, equip-
ment; and about $200,000, land and building.2
1 M. M. Zimmerman, Super Market Spectacular Exponent of Mass Distribu-
tion (New York: Super Market Publishing Co., 1937), p. 8.
2 "Food Fair Supermarkets," Fortune, Vol. XLI, no. 6, June, 1950, p. 99.
121
122 Supermarketing
Harley V. McNamara, president of the National Tea Company,
a supermarket chain of 932 units as of December 31, 1958, reported
the costs of a new supermarket as follows: inventory, $58,000; fix-
tures and installations, $42,000; and real estate, $100,000.3 Some of
the recently opened "super duper" stores required: inventory, $100,-
000 to $250,000; equipment and installation, $100,000 to $250,000;
and monthly rental from $2,000 to $5,000.
A new 26,000 to 27,000-sq ft store in Houston, Texas, required: 4
Land $100,000
Building 350,000
Equipment 150,000
Inventory 150,000
$750,000
Similarly, a new store in Oklahoma City, Oklahoma, on 72,800
sq ft of land, with a building of 18,000 sq ft of space, required: 5
Land $ 47,750
Building 140,000
Paving 20,000
Equipment 90,000
Inventory 95,000
Cash fund 30,000
$422,750
John A. Logan, president of the National Association of Food
Chains, reported the following asset items of an average super-
market in a statement to the Consumers Study Subcommittee of the
Committee on Agriculture, House of Representatives, on May 7,
1957: 6
3 Taken from an address, "Modern Trends in Food Retailing," given before
the Chicago Federated Advertising Club on October 12, 1952.
4 M. M. Zimmerman, The Super Market (New York: McGraw-Hill Book Co.,
Inc., 1955), p. 171.
5 Ibid.
6 John A. Logan, Progress in Food Distribution (Washington: National As-
sociation of Food Chains, 1957), p. 20.
Financial Factors 123
Building $192,000
Parking lot 10,000
Leasehold improvements . . 34,300
Land 25,000
Sales equipment 87,100
Behind-the-scenes equipment . 65,500
Inventory 82,000
This total outlay for a modern super is a far cry from the $3,000
capital required to open an A & P unit in the 1920's or the $10,000
Big Bear in 1933.
DEVELOPMENT OF A REPRESENTATIVE
SUPERMARKET BALANCE SHEET
The major assets required to open a supermarket, regardless of
who owns or finances the building, have been shown to be cash,
inventory, prepaid expenses, equipment, land, and building. In-
tangible assets in the form of good will and leasehold improvements
also appear. Inasmuch as no statistics based on industry surveys as
to asset and liability items have been published, a balance sheet of
a representative supermarket was developed and presented in Table
7-1 along with a representative operating statement. These financial
statistics were based on ratio analyses from various industry sources,
particularly data submitted by certain supermarket chains which
operated 6,379 stores out of total industry units of 17,024 in 1956.
Other data were gleaned from statements and comments of bankers
and executives in the industry, obtained through personal interview,
and from speeches and trade magazines. This is the first known
endeavor to depict a representative store. The estimates developed
will of course vary from statistics of individual concerns because of
operating policies, location, and size.
Assume that the representative super in Table 7-1 occupies a 10,-
000-sq ft, single-story brick building in a suburban location. Ad-
jacent is a lighted and paved parking lot of 40,000 sq ft— four times
the store area. Using $110 yearly sales per square foot of building
space as a conservative estimate, the store transacts a $1,100,000
124 Supermarketing
TABLE 7-1 *
Balance Sheet and Yearly Operating Statement of
a Representative Supermarket.
Balance Sheet
Asssets Liabilities
Cash $ 30,000 Accounts payable ... $ 40,000
Inventory 75,000 Accruals and notes payable 20,000
Total current assets . 105,000 Total current liabilities . 60,000
Equipment 75,000 Long-term debt .... 104,000
Deferred charges . . . 3,000 Net worth 164,000
Building 100,000
Parking lot 15,000
Land 30,000
Total assets .... $328,000 Total liabilities .... $328,000
Yearly Operating Statement
Sales $1,100,000 100%
Cost of sales 891,000 81
Gross margin 209,000 19
Operating expenses, fixed 66,000 6
Operating expenses, variable 110,000 10
Net profit before taxes $ 33,000 3%
* Based on ratio analyses from various industry sources.
yearly volume. Assuming a gross margin of 19 per cent and a stable
monthly inventory, yearly cost of sales will be
$1,100,000 X (100% - 19% ) = $891,000
With a turnover of 12 times per year, the average inventory in the
store is
$891,000 -f- 12 = $74,250
or, for approximate purposes, inventory is estimated at $75,000.
Equipment in a store approximately equals the inventory of $75,000.
Another rule of thumb employed is $3.00 of equipment for each $1.00
in weekly sales.
Financial Factors 125
The ratio of inventory to total current liabilities equals from 1:1
to about VA :1. Using a ratio of VA :1, current liabilities will equal
$75,000 -f- 1.25 = $60,000
In turn, accounts payable equals about two-thirds of current liabili-
ties, or $40,000, with the balance accruals plus current payments on
indebtedness. Cash should average from one-half to equal the cur-
rent liabilities, thus assuring adequate working funds. If the one-half
ratio is used, cash needed will be $30,000. The current ratio in this
typical balance sheet is 13A :1, a figure in line with ratios that vary
from 1*4:1 up to 2:1.
The 10,000-sq ft building, using an estimate of $10 per square foot,
will cost $100,000. Land cost varies by location, but it has been esti-
mated to be about 20 to 30 per cent of the building for suburban
locations. If the 30 per cent figure is used, land cost will be $30,000.
The grading, paving, and lighting of a 40,000-sq ft parking lot will
cost approximately $15,000. Prepaid expenses are nominal and would
be no more than $3,000.
Indebtedness can vary widely among the individual markets. Total
debt to net worth tends to be heavy, especially for concerns financ-
ing real estate. Under the assumption that this firm owns its build-
ing, a figure of $1.00 of debt to $1.00 of equity capital is used. Thus
net worth will be one-half of total assets of $328,000, or $164,000.
Total debt will be $164,000, of which $60,000 is already accounted
for by current liabilities. The balance of indebtedness will be
$164,000 — $60,000 = $104,000
This $104,000 is long-term debt secured by equipment and building
and is represented by both chattel and real estate mortgages.
To develop the picture further, an operating statement predicated
on ratios established in Chapters 4 through 6 is presented in Table
7-1.
CURRENT ASSETS
The principal current items are cash and inventory. This highly
simplified, current asset condition results from sales on a cash basis.
126 Supermarketing
In addition, the amount of working capital needed for a super-
market tends to be less than that for most other forms of retailing
because:
1. Inventory turnover is considerably higher. Therefore less in-
ventory is needed for a given sales volume.
2. Cash sales reduce the time for one merchandising cycle,
namely, the movement from inventory, to receivables, to cash, and
back to inventory. The speed of the merchandising cycle also is in-
creased by high inventory turnover in supermarts.
3. Consigned merchandise from rack jobbers is used frequently
in the nonfood area. The super then not only has no merchandising
problems but also has no funds tied up in nonfood items.
4. Relatively stable sales from week to week or month to month
can lower working capital needs and simplify its control. Seasonal
inventories are much less of a problem than in most other forms of
retailing, so that peak working capital needs are less. In addition,
the predictability of sales, inventory, and working funds is simpler,
so that supers can work on narrower cash requirements.
Therefore the current assets needed, compared with other forms
of retailers doing the same volume, can be substantially less. A
steady cash flow from sales reduces cash requirements and makes
budgeting problems simpler. Thus management can center its at-
tention on inventory and its control. A retailer is a merchandiser, and
profits are made from merchandising operations— buying and selling.
However, because of rising food costs and more diversified inven-
tories, members of this industry have found it necessary to gradually
increase working capital over the years.
Investment bankers who have assisted this industry in its financ-
ing problems by selling securities to the general public have indi-
cated that working capital needs for a smaller concern should be
150 per cent of total debt and for large chains at least 125 per cent
of total liabilities.7 An examination of the balance sheets of repre-
sentative industry members indicates that this ratio varies by size
7 These statistics are from an address by Al Donohue, Kidder Peabody and
Co., at the Twentieth Annual Meeting of the National Association of Food
Chains held in Washington, D.C., on December 5, 1953.
Financial Factors 127
of concern and is also a function of the number of buildings owned,
the current expansion plans, and the method of financing. Colonial
Stores, Incorporated, as of December 31, 1958, had a ratio of work-
ing capital to debt of 125 per cent; Fisher Brothers Company, a
Cleveland chain, had a ratio of over 200 per cent on the same date;
and Daitch Crystal Dairies, Incorporated, a New York chain, had
working capital approximately equal to indebtedness.
EQUIPMENT NEEDS IN A SUPERMARKET
Next consider the specific equipment needed in a modern super-
market. Basically it takes as much capital to equip a store as to
stock it. The substantial investment becomes apparent when the
costs of specific items are considered: 8
1 check-out stand and register $1,775
1 double-decked dairy case 1,360
1 gondola for display 675
1 shopping cart 22
1 ice cream freezer 2,100
1 frozen food case 1,475
1 coffee grinder 375
Refrigerated display space for produce and meat,
per linear foot 150
Air conditioning cost for a single store, 20,000-sq ft
building • • 17J00
Compressor for the same size building 6,850
In a modern market with 14,200 sq ft of selling space and total
space of 24,200 sq ft, the following layout specifications for meat,
produce, and dairy displays were established: 9
Lin ft
Produce I™
Fresh meat 70
Processed meat ™
Delicatessen items 20
Floral i5
Dairy and cheese 60
Total 355
8 "The Cost of a Supermarket," Chain Store Age, Grocery Executive Edition,
October, 1953, p. 197.
9 "How Three Get More for Their Construction Dollar," Super Market Mer-
chandising, Vol. XXIII, no. 5, May, 1958, p. 86.
128 Supermarketing
At a cost of $150 per linear foot, this equipment alone cost approxi-
mately $53,250. In addition, the market required 144vft of frozen-
food display space. »"■
Furthermore, behind-the-scenes equipment must be considered.
In a 20,000-sq ft market built in the 1950s, these expenditures neces-
sitated (1) $1,300 for mechanical handling of merchandise, (2) $2,-
200 for a built-in overnight produce refrigerator, and (3) $8,500
for a built-in meat-storage room.10 A cork cooler room in a 10,752-
sq ft market built in 1958 cost $ll,225.n
Outside equipment also must be considered. Furr's, a supermarket
operation in Lubbock, Texas, paid $5,225 for neon display signs in
a modern market.12 Parking lot lights can vary from $800 to $2,500,
depending on the size of lot and type of equipment. An advertising
pylon or tower used to differentiate the stores of a Midwest chain
cost $15,000.
Although smaller supers do not require as much in fixtures on a
dollar basis, it is important to recognize the costly and specialized
equipment required to operate a supermarket. In addition, the
equipment needs continue to grow both in dollar cost and in abso-
lute amounts.
LAND AND BUILDING
The direction taken by investment in assets plays a vital role in
supermarket earnings. On the one hand, supers need to locate in
areas where operations can be profitable. This may involve real
estate commitments in order to have a place to do business. On the
other hand, supers are in business to make money on merchandising,
not real estate.
To erect a supermarket building is costly. Vice-President Meyer
Marcus of Food Fair Stores indicated that a 12,000- to 15,000-sq ft
building and land in a suburban location would cost about $200,-
10 "The Cost of a Supermarket," Chain Store Age, op. cit.
11 "How Three Get More for Their Construction Dollar," Super Market Mer-
chandising, op. cit.
12 Ibid., p. 100.
Financial Factors 129
OOO.13 Carl Teutsch, architect and engineer of supermarkets in the
Midwest, estimated that a 1954 one-story supermarket cost $9.00 to
$10.00 a square foot plus the land.14 He quoted the cost just prior
to World War II at about $5.00 a square foot. John A. Logan, presi-
dent of National Association of Food Chains, reported the average
modern chain supermarket cost $25,000 for the land and $192,000
for the building.15
Specific building costs vary by areas. Eagle-United Supermarkets,
Rock Island, Illinois, reported the following building cost figures
for a 10,752-sq ft building built in 1958: 16
General contract $ 86,310
Steel 17,573
Gypsum roof 6,800
Floor covering 1,820
Electrical contract 37,460
Plumbing 12,230
Painting 1,202
Acoustical ceiling 5,896
Heating and air conditioning > 22,500
Magic doors 3,391
Miscellaneous 2,184
Total $197,366
H. W. Underbill, Los Angeles architect, reported the following
building costs for a one-story stucco building with 27,800 sq ft of
space all on one floor: 17
Structure finish and plumbing $204,000
Electrical work 37,000
Air conditioning 16,500
Fire sprinklers 14,250
Cooler rooms 8,200
Total $279,950
13 "Food Fair Supermarkets/' Fortune, op. cit.
14 These estimates were made in an interview on December 10, 1954. Mr.
Teutsch had designed and constructed many of the buildings for the National
Tea Company.
15 John A. Logan, Progress in Food Distribution, op. cit.
16 "How Three Get More for Their Construction Dollar," Super Market Mer-
chandising, op. cit., p. 101.
" Ibid., p. 95.
130 Supermarketing
The average 1957 super, as reported by the Super Market Insti-
tute, required building costs of $11.24 per square foot, exclusive of
land, parking lot, coolers, and sprinklers but including air condition-
ing.18 Costs were slightly lower ($9.83 per square foot) if all con-
struction was on one floor. The industry figure for all equipment,
land, and building for the year 1957 was $19.98 per square foot of
building space.
INTANGIBLE ASSETS
Two intangible assets commonly appear on the records of super-
markets. One results from improvements or alterations made to prop-
erty controlled by the super under lease— leasehold improvements.
Such improvements become a part of the real estate and revert to
the owner of the real estate at the expiration of the lease. Leasehold
improvements include remodeled store fronts, electronic doors, and
loading platforms. These assets are of value to the super in the con-
duct of its business in leased quarters, but they are subject to amor-
tization over the period of the lease. The extent of improvement put
in by a lessor is related to the rental charge, the value of the real
estate, and the length of the lease.
The other intangible asset that appears is good will. This occurs
in the outright purchase of a unit or group of units by another
super. Selling price is predicated on earning power, not the book
value of the assets. For example, one supermarket chain in the Mid-
west paid $100,000 for a market that constantly earned $25,000
yearly profit before taxes. Assets were carried on the sellers books,
however, at $80,000. The buyer recorded on its records $80,000 in
tangible assets and $20,000 in good will. The recent strong trend
toward acquisition and merger that developed in this industry in
the 1950's has led to the rapid appearance of this intangible asset
on supermarket balance sheets. Good will can be written off to a
$1.00 value at the discretion of the purchaser.
18 From an address, "Facts About New Supers Opened in 1957," given by
Curt Kornblau, Director of Research, Super Market Institute, at the annual con-
vention in Cleveland, Ohio, in May, 1958.
Financial Factors 131
LEASING OF FIXED ASSETS
Supermarkets are merchandising organizations that thrive on a
large volume of fast-moving inventory. Profits result from selling
merchandise— the cash-to-inventory-to-cash cycle. In order to achieve
this objective in a dynamic industry, supers have been forced to
pioneer new locations with modern stores that require a substantial
investment in equipment.
There are two methods by which supers can obtain the necessary
fixed assets needed for their operation, namely, lease or purchase.
Under the lease arrangement, the fixed assets used do not appear on
the balance sheet nor do the lease payments contracted for appear as
a liability, even though the rental obligation over a long period of
years is there. Supers, in effect, are able to have their long-term
financing provided by others. Under a purchase arrangement, the
fixed assets and such indebtedness as results from financing appear
on the records. This financing of fixed assets also can be furnished
by others or by the supermarket itself through equity capital; or the
financing can be furnished jointly by others (creditors) and the
operators (owners). Therefore the method of acquiring fixed assets,
either leasing or purchasing, significantly affects the ratio of profits
to total assets used by supermarkets and makes analyses and com-
parisons among firms difficult. In addition, the method of acquisition
has a bearing on profits related to net worth. If the fixed assets are
leased, ownership capital can be used for current operations. If
fixed assets are owned and can be financed 100 per cent by credi-
tors, the equity capital can still be used entirely for current opera-
tions. Thus the ratio of net profit to net worth will not be changed.
If fixed assets are owned and a portion of these assets must be
financed from equity capital, which is generally the case, then one
of two things must happen. Either more equity capital is needed
(in which case the ratio of net profit to net worth decreases) or
creditors' funds must be obtained to finance part of current opera-
tions (in which case the ratio of net profit to net worth remains the
same as in the first case).
132 Supermarketing
To compare companies that (1) own fixed assets, (2) lease fixed
assets, or (3) both own and lease fixed assets, the long-term lease
payments should be capitalized at some rate depending on real
estate market conditions in order to get a true picture of debt in
relation to controlled assets. This capitalized figure can be con-
sidered as debt when making comparisons, to put all concerns on
a comparable basis.
Theory of Leasing versus Owning Store Buildings
Should a supermarket invest in land and buildings? The "cheapy"
supers looked for abandoned factories or warehouses to rent. But
the supers followed the population shift. As supermarkets mush-
roomed, particularly in outlying areas, new buildings and parking
lots have been required. Many of these structures are specialized
as to size, arrangement, and location. Alternate uses of the property
frequently are limited, which increases the risk. Although some loca-
tions have been available for rent in shopping centers and in new
suburban buildings, the supermart operators frequently are required
to finance buildings in new locations. Is this the best alternative use
of capital?
Assume the super shown by the statistics in Table 7-1 could lease
the property. Then the balance sheet of the super would be as fol-
lows:
Cash $ 30,000 Accounts payable ... $ 40,000
Inventory 75,000 Accruals and payments . . 20,000
Equipment 75,000 Long-term debt .... 31,500
Deferred charges . . . 3,000 Net worth 91,500
Total assets .... $183,000 Total liabilities . . $183,000
The changes from Table 7-1 are predicated on the following as-
sumptions: Building, land, and parking lot are eliminated from the
records. Assume that the real estate of $145,000 was financed equally
by the operator and an insurance company; both long-term debt and
net worth would be reduced $72,500 each to $31,500 and $91,500,
respectively. No change in the current position would be involved.
On the reasonable assumption that the rental expense of the prop-
Financial Factors 133
erty to the super would be approximately the same as the building
expense involved under ownership of the property (under owner-
ship the super faces depreciation, interest, insurance, and taxes),
the net profit would remain 3 per cent of sales. With the volume un-
changed, the net profit would remain at $33,000.
Profit on total assets of $328,000 for the company shown in Table
7-1 would be
$33,000 xloo = iaoe%
$328,000
Profit on total assets of $183,000 for the same company but with
the real estate leased would be
SxlM=18«
Simply, leasing the real estate instead of owning it requires less
equity capital and results in a substantially larger profit related to
total assets owned. Yet, in effect, the super is controlling $328,000
in assets although only $183,000 appear on the financial records.
The lease payments could be capitalized and considered as debt and
the real estate regarded as an asset in order to compare assets used.
Profit on ownership capital of $164,000 for the super in Table 7-1
that owns the building would be
g^X 100 = 20.12%
But if the building were leased, the percentage profit on ownership
capital of $91,500 would be
|»X 100 = 36.07%
Inventory versus Real Estate
Continue this analysis in terms of an alternative of investing either
in real estate or in merchandise. The representative balance sheet in
Table 7-1 indicates that real estate totaled $145,000. Assume this
property commands a rental equal to 1 per cent of sales of $1,100,-
134 Supermarketing
000, or $11,000, per year. Furthermore, assume taxes and insurance
of $1,500 and neglect depreciation and repairs. The yearly net re-
turn on this asset bearing no mortgage would be
$11,000 - $1,500 == $9,500
On an investment of $145,000, this $9,500 would furnish a return of
6.6 per cent.
To make an even better percentage showing on the investment in
real estate, introduce leverage. Assume the property to be mort-
gaged for 70 per cent of its value at 5 per cent yearly interest. The
owner would tie up only 30 per cent of his equity in the property,
or
$145,000 X 30% = $43,500
Interest per year on the balance would be
($145,000 - $43,500) X 5% = $5,075
Therefore total yearly expense would be .
$5,075 interest + $1,500 taxes and insurance = $6,575
This would leave a yearly net profit of
$11,000 rental — $6,575 expense = $4,425
A return of $4,425 on an investment of $43,500 would be 10.2 per
cent. This would leave $101,500 of the original equity capital of
$145,000 still available for other purposes.
If the $145,000 capital were placed in merchandise and the prop-
erty leased at a comparable rate, the added inventory of $145,000
divided by the gross margin of 81 per cent would bring sales of
$145,000 _$170Q00
(100% -19%) -$179'00°
Net profit of 3 per cent on that volume would be $5,370. But inven-
tory is turned over 12 times per year, thus offering a phenomenal
advantage in favor of merchandise instead of building ownership.
Or, if the minimum investment in the building of $43,500 is used as
Financial Factors 135
the addition to merchandise, this will result in yearly sales at a turn-
over of 12 times
$43,500 _ m4m
(100% -19%)
The net profit on the $644,000 volume at a 3 per cent rate would be
$644,000 X 3% = $19,320
There is thus a substantially greater profit possibility of $19,320 from
merchandising versus the $4,425 earned on the building investment,
with $101,500 of the original equity capital of $145,000 still available
for other purposes. The $19,320 profit is equivalent to a rate of 44.4
per cent return on the $43,500 placed in merchandise.
Obviously the addition of a larger stock totaling $43,500 as as-
sumed above would require a larger market or an additional market
and make exact comparisons difficult. If the same market were used,
conceivably turnover could drop. But generally there is a compara-
tive advantage of inventory over fixed assets. While a super must
have a place in which to transact business, management must real-
ize that greater profits can accrue from skillful merchandising than
from investment in real estate.
Leasing New Locations
The major difficulties with owning store buildings are: first, tying
up capital in fixed assets; and second, using capital in a less profit-
able alternative, namely, real estate activities and not merchandis-
ing. Several plans have been used to finance real estate requirements
with no capital needed or with funds tied up for only a short period
of time.
The first is to have the building erected and financed by outside
interests. The super in turn leases the premises. Private individuals
who own suitable land or concerns who develop shopping centers
negotiate with supermarkets. On the strength of a lease, perhaps
10 years, private sources erect the building for the supermart. Fre-
quently small satellite stores are included in the plans, or the project
136 Supermarketing
is designed as a regional shopping center housing several supers
and a department store. If the property is developed by a concern
specializing in that field, it is generally sold in turn to private and
institutional investors.
The second plan is to have a supermart concern purchase the
land, erect the building, and then sell the property to private in-
vestors. The supermarket leases the premises over a period of 10 to
25 years, generally with an option to renew at a stipulated increased
rate. Funds are tied up in the property until sold. This leaseback
method has developed into a widely used vehicle for financing real
estate inasmuch as it offers the merchant a "tailor-made" market,
frees capital, enables rental paid to be a legitimate tax expense, and
furnishes a market to the merchant over a long period of years in an
inflationary era. In addition, many leases contain a negotiation
clause which will permit the lessee to terminate the lease should the
location prove undesirable. Most real estate departments of large
chains have developed properties they desire to sell.
A modification of the leaseback method used particularly by
larger chains is the organization of real estate holding affiliates. An
affiliate is a corporation related to another by owning or being
owned by a common management or by any other control device.
The concerns involved are separate legal entities; to the owner of
the property (the lessor), the supermarket operating concern (the
lessee) is simply a tenant. The supermarket chains execute long-
term leases with their affiliates at going market rental rates. The
affiliates in turn have been able to obtain financing, sometimes up
to 100 per cent of cost, by offering as security not only the proper-
ties but an assignment of the rentals under the leases. The lender in
this instance bases the appraisal not on the cost of the property but
on the value under terms of the lease. This value is determined by
market surveys which predict expected sales volume related to the
rentals to be paid under the lease. Frequently these leases require
a fixed obligation plus a percentage of sales above a prearranged
amount.
The use of subsidiary corporations to finance real estate properties
\
Financial Factors 137
is examined later in this chapter in the section Sources of Capital-
Debt.
Lease of Equipment
The arguments advanced for leasing real estate properties also
can be used as reasons for supers to lease equipment. While the
rental amount of equipment has nowhere near attained the propor-
tions of real estate leasing, there has been a movement in this direc-
tion by either the straight-lease plan or the rental-purchase agree-
ment. The latter has the advantage in that the lessor has an option
to buy the equipment at some time during the term of the lease,
receiving credit against the purchase price for any rental payments
made. The rental-purchase plan may meet with objections of the
Internal Revenue Bureau. The key as to what constitutes a bona fide
lease is the option price to the lessee-purchaser. Where this price
runs considerably lower than a reasonable market value for the
equipment, tax authorities may reverse the claim. Operators who
contemplate leasing equipment should bear in mind the annual cost
of owning equipment, which in 1958 averaged 1.38 per cent of
sales.19 These costs include all charges for taxes, insurance, inter-
est, repairs, and depreciation.
SOURCES OF CAPITAL— DEBT
Two sources of capital in a business enterprise appear on the
credit side of a balance sheet, namely, ownership funds and indebt-
edness. In the preceding section, Leasing of Fixed Assets, it was
shown that a super can control certain assets needed for the opera-
tion of the business without legally acquiring title to them. The
asset and such accompanying financing do not appear on the bal-
ance sheet. Indebtedness, considered in this section, generally is
classified by length of maturity as either a short- or long-term obli-
gation. The usual accounting practice is to regard all obligations
due within one year as a short-term liability; all others are long-
!• Wilbur B. England, Operating Results of Food Chains in 1958 (Cam-
bridge: Harvard Business School, Bulletin No. 156, 1959), p. 2.
138 Supermarketing
term. A list of sources of capital for the supermarket industry is
shown in Table 7-2.
Supermarket management must borrow on the most favorable
TABLE 7-2 *
Sources of Capital for the Supermarket Industry.
Unsecured short-term loans
Unsecured long-term loans (deben-
tures)
Secured real estate loans
Secured equipment loans
Inventory loans
Invested equity capital
Commercial banks
Commercial banks
Insurance concerns
Public
Commercial banks
Savings banks
Building and loan associations
Mortgage bankers
Investment trusts
Pension funds
Insurance concerns
Universities
U.S. Government corporations
Investment bankers
Finance concerns
Factors
Commercial banks
Suppliers
Commercial banks
Private
Public sale of stock
Customers
* Arthur H. Richland, "How to Raise Cash and Influence Bankers/' Super
Market Merchandising, XX, no. 8, August, 1956, p. 42.
terms possible in this narrow-profit industry. To do this, it is neces-
sary to maintain a satisfactory financial condition and operating
record. In addition, management (especially of the smaller firms)
should make certain that: 2°
20 This check list is from an address, "Essential Factors in Sound Financing/'
given by Henry Shaffer, Shaffer Stores Co., Inc., at the 20th Annual Meeting
of Food Chains in Washington, D.C., on December 5, 1953.
Financial Factors 139
1. The chief officer delegates authority and spends time on policy
making and its direction.
2. A good No. 2 man is in the company.
3. A financial policy man is on the staff working with the top ex-
ecutives.
4. The accountant has set up a good system of records including
cost control measures.
5. A personnel and training director is on hand.
6. An organization chart has been set up.
Short-Term Indebtedness
Supers sell on a cash basis. Stock turns over about once a month.
It would seem possible for the trade debt to be large and for credi-
tors' money to be used to finance the inventory. However, credit
terms vary from daily or weekly for some fines ( such as bread and
dairy products) to monthly for others (such as coffee and certain
canned goods). In addition, it is imperative that supermarkets take
advantage of the 2 per cent cash discount frequently offered by
food product manufacturers or distributors; the operating profit as
a percentage of sales has averaged only 3 per cent of sales before
income taxes. Thus the shortness of the selling terms and the neces-
sity for taking cash discounts has mitigated to some extent in the
use of suppliers' funds to finance the inventory. However, the super
that gets into an overstocked inventory position frequently is aided
financially by a wholesaler who has some control over the inventory.
Banks find it inconvenient to make loans secured by the inventory
in such a situation because it is difficult to supervise and control
merchandise on a shifting-stock basis. Unsecured loans are possible
in the right credit environment.
Supermarkets have found bank loans, in the form of short-term
notes payable, to be of significant help in financing many activities.
These short-term loans have been used: (1) in the purchase of an
existing store by a larger organization with large cash flow from
sales so that the loan can be paid off shortly, (2) as down payment
240 Supermarketing
on land, (3) for the start of construction pending the raising of
long-term capital, (4) for purchase of equipment, and (5) for work-
ing capital. The expanding supermarkets have been wide users of
bank credit. There is a trend toward increased current indebtedness
in the form of notes payable, including current payments on long-
term indebtedness.
Long-Term Indebtedness
Most indebtedness contracted for by members of the supermarket
industry has been of a long-term nature in the form of:
1. Long-term notes payable
2. Debentures
3. Chattel mortgages
4. Real estate mortgages
Sources of long-term borrowing are shown in Table 7-2. Insur-
ance companies and investment bankers have been the two major
lenders to the large supermarket chains. For the small operators,
insurance companies have been the main source of real estate financ-
ing; commercial banks and finance companies have been the prin-
cipal lenders for the purchase of equipment. One source of long-
term financing available to the small supermarket concern with an-
nual gross sales less than $2,000,000 is the Small Business Adminis-
tration. This governmental agency was organized to make loans to
small business if no credit is otherwise available from private sources
at reasonable rates of interest. These loans, which can run for a
maximum of 10 years, generally require a real estate and chattel
mortgage on all capital assets of the business. From 1953 to 1957
the Small Business Administration granted 409 loans to food re-
tailers totaling $12,855,000.21 The main reasons for the denial of
loans by the Small Business Administration were (1) the earning
ability of the firm was not demonstrated and (2) the collateral was
insufficient.
21 "Government— Its Role in Financing," Cooperative Merchandiser, August,
1958, p. 17.
Financial Factors 141
Long-term notes payable. A note payable is a term applied to a
promissory note with reference to its maker.22 The classification
long-term liability refers to an obligation which will not become
due within a relatively short period, usually a year. Supers have
borrowed for expansion on long-term notes from institutional in-
vestors or banks. It has been a common practice for supermart
concerns, particularly the chains, to borrow sizable funds from a
private source such as an insurance company or pension fund. The
funds obtained have been used for general corporate purposes, in-
cluding additions to working capital, purchase of another concern,
or expansion. Examples of promissory notes payable, outstanding
as of December 31, 1958, include notes totaling $453,316 of the
Evans Grocery Company with 13 supers in West Virginia, Ohio,
and Kentucky, and note indebtedness of $1,375,000 owed by Fisher
Brothers Company with 87 supers in the Cleveland area.
Debentures (bonds). Debentures are securities not protected by
collateral or tangible assets but only by the general credit of the
issuer. The underlying indenture may require certain protective
measures such as the maintenance of a specified working capital
ratio, limitations on the amount of any additional funded debt, and
restrictions on dividends to stockholders.23 There is no clear-cut
distinction between a bond and a note other than the fact that the
latter generally means a relatively short-term obligation, one matur-
ing not more than 10 years after issuance.24
While this method of financing has been used sparingly by one-
or few-unit operators, many of the larger supermarket concerns
have sold debentures both publicly and privately. Some concerns
have offered several different issues of debentures. In addition, other
operators have used successfully the subordinated debenture with
conversion or warrant privileges. These privileges permit the holder
22 Eric Kohler, Dictionary for Accountants (New York: Prentice-Hall, Inc.,
1952), p. 285.
23 Ibid., p. 136.
24 B. A. Graham and D. L. Dodd, Security Analysis (New York: McGraw-
Hill Book Co., Inc., 1953), p. 83.
142 Supermarketing
to convert the bond to capital stock at certain specified dates and
at specified prices. Certain insurance concerns have loaned on de-
bentures totaling as little as $500,000, but they may require an op-
erator to furnish detailed financial statistics for a period of at least
10 years. On December 31, 1958, the previously mentioned Evans
Grocery Company had $84,162 outstanding in 10-year debentures
issued to employees. One of the largest users of debentures is Food
Fair Stores, Incorporated. As of January 1, 1959, this concern had
outstanding the following long-term obligations:
3 per cent debentures due January 1, 1965 $ 5,562,000
3% per cent debentures due September 1,
1974 $18,750,000
4 per cent convertible, subordinated deben-
tures due April 1, 1979 $21,203,200
Chattel mortgages. These are mortgages on personal property-
equipment in a super. Financing by chattel mortgages has been
used extensively in this industry, particularly by smaller chains or
supers with one store or a few outlets. The large chains in the main
have generated funds for equipment through normal cash flow op-
erations or have borrowed from banks or institutions on a note
basis.
Two principles of equipment financing are: (1) A particular fixed
asset should "pay for itself" during its useful life; and (2) Owner-
ship capital should provide a portion of the required financing. The
different types of equipment in a supermarket vary in their useful
life, but the operators and lenders alike report the maximum financ-
ing terms should not exceed 10 years, preferably 5 to 7 years. Some
progressive banks that have become familiar with the supermarket
industry have shown a willingness to extend loans longer than the
traditional 36 months, considered to be a rule-of-thumb maximum
for equipment financing by banks.
Repayment rate for chattel mortgages can be (1) a fixed amount
payable monthly or quarterly or (2) a declining rate with a rapid
payoff in the early years and nominal payments toward the end.
Financial Factors 143
The latter plan has become more popular since tax authorities have
approved accelerated depreciation. The two approved methods of
computing rapid depreciation are the "sum-of-the-years-digits" and
the "declining-balance method." Equipment manufacturers and
dealers have given wide publicity to the "pay-as-you-depreciate"
plans.
Real estate mortgages. These are liens on land or buildings given
by a borrower to the lender as security for his loan. When a mort-
gage constitutes the security against which bonds are issued, the
lien is conveyed by what is ordinarily known as a deed of trust.
Mortgages can be secured by a specific piece of real estate or all
the real estate property.
The basic method by which a supermarket finances and owns a
new location is simply to acquire the land, erect the building, and
mortgage the property for about two-thirds of the total cost. On
the average, for a new $200,000 location a super would tie up $70,-
000 of its funds and mortgage the balance for $130,000. In some
cases, mortgage money only up to one-half of land and building
costs is available.
A refinement of this fundamental method of financing real estate
employed by some supermarket chains is the use of a subsidiary
corporation. The stock of the subsidiary is owned partially or en-
tirely by the parent supermarket. The subsidiary issues first mort-
gage bonds secured by mortgages on all the properties and by as-
signment of the lease rentals. These bonds are legal investments for
a number of institutional investors who otherwise are not interested
in single property financing. This plan also has the added attraction
of more diversified security behind the bonds since the security
consists of a number of properties with geographical spread. Fur-
thermore, the insurance companies, which are an important source
of long-term funds for the supermarket owner, are limited in most
states by law as to the amount of fee-owned real estate they can
hold. This limits their capacity for direct leasebacks. Institutional
investors also are limited as to the mortgages they may hold both
144 Supermarketing
as to amount and location. The first-mortgage bonds of a real estate
subsidiary are not limited to these extents and also make available
to the operator 100 per cent financing of the cost of a store.25
SOURCES OF CAPITAL— OWNERSHIP
Many of the growing regional chains that started as one-store
units back in the 1930's entered the capital markets in the postwar
period to procure funds for expansion. As a result of public sale of
securities, their financial records were revealed. This was the case
for many of the concerns included in Table 7-4. The equity securi-
ties sold included both preferred and common stock. The quest for
equity funds for expansion has taken many forms and has been a
constant problem in expansion.26 The sale of equity securities also
has broadened the base for borrowing by supermarket operators.
The sale of preferred stock, generally offering 5 and 6 per cent
cumulative dividends and preferable as assets in case of liquida-
tion, has been widely used by over 60 per cent of the larger mem-
bers of the industry. In fact, two issues of preferred stock were sold
by six of 37 firms studied. However, preferred-stock financing is
not limited to large firms. One enterprising operator sold preferred
stock to his customers in the store literally "over the counter." Not
only did he obtain funds, but he more or less tied his customers to
the market. Care must be taken in this kind of operation to make
certain the laws governing security sales are not broken.
The larger concerns that have sold stock publicly still have man-
aged to maintain control of the business. Tins is possible because,
with a large and widely held stock offering, a small active manage-
ment minority can control the operation. Some of the smaller con-
cerns, perhaps fearful of losing control, have issued several forms
of common stock. The public on occasion has been sold nonvoting
securities.
25 Donohue, op. cit.
26 "Methods of Financing Store Construction," Super Market Merchandising,
XIII, no. 6, June, 1946, p. 66.
Financial Factors 145
PROFITS ON EQUITY CAPITAL
Net profits expressed as a percentage of sales for the supermarket
industry were found in Chapter 6 to be about a modest 3 per cent
of sales before taxes. Then how can this industry flourish with such
a relatively low profit rate, especially since it has tended to decline
in the postwar era? The analysis of sales, cost, and profit relation-
ships at various levels of volume of the representative supermarket
given in Table 7-1 furnishes the key to one of the most vital super-
marketing financial principles. The results of this analysis are found
in Table 7-3.
Assume the representative supermart illustrated in Table 7-1 is
a successful venture with yearly sales of $1,100,000, profits of $33,-
000, ownership capital of $164,000, net profit of 3 per cent of sales,
and return on ownership capital of 20.12 per cent. Statistics con-
tained in Table 7-3 indicate what the operating results of this store
would be at various volume levels. Fixed costs (basic rent, depre-
ciation, utilities, etc.) are assumed at 6 per cent of the $1,100,000
volume, or $66,000.27 Merchandise cost and variable operating ex-
penses fluctuate with sales; and in Table 7-3 these items are 81
per cent and 10 per cent, respectively. The variable expenses in-
clude such items as wages, stamps, and merchandise handling. The
breakeven point for this store is $733,000, at which level the sales
dollar equals merchandise cost plus all operating expenses.
Basically the supermarket has a low fixed cost and a low break-
even point as compared with those of heavy industry. These, along
27 The 6 per cent fixed expense figure was established jointly with Everett
Mann, C.P.A., and former professor of accounting, Emory University, afer an
analysis of operations at different levels of volume for several supermarket firms.
This figure involved certain assumptions in classifying expenses as either fixed
or variable. Fixed expenses are not absolutely constant in a supermarket inas-
much as certain expenses listed in this category, such as utility expense, could
be curtailed if the volume shrank materially. In addition, all variable expenses
do not vary absolutely with sales. Discontinuities develop in certain production
services; for example, an additional check-out stand may be needed but yet
may not be used at maximum efficiency when added. By allowing for these
factors and assumptions, the relationships established are believed accurate for
use in the analysis of breakeven operations.
V
>
"43
BJ
•»-»
0
V
(A
ft s
« 3
«-3
©>
a*-
o
>H
O W5
<*« •--<
o
*
M >
s
2^
.2 o
5 §
g
■M
■M C3
ca
o *»
s V
*■£
§ s
^r ft
O C/5
O
146
£«1
■is co
O O
hi °
^ csTg
■8 8.°
18 J
^
1?
co 10 co cq <-< o
O CO •— I CD r-4 CD i— I
CO o5 TJH o io r-5
HOKNCO
WNOOOd
O t-; CO TJH O lO C5
o i-5 oq co co co
ooooooo oooooo
ooooooo oooooo
o o^ o^ c^ o^ o^ o^ o o^ o^ o^ o^ o^ o^
t> co" a>" o" i-T of co" co ic" -^ co" of i-T
io^coco(Mi-i »-i cq co ^ io
T i i i i i i ++++++
oooooooooooooo
oooooooooooooo
o o o o^ o^ o^ o^ o_ o^ o^ o^ o^ o^ o
t> co Oi o" r-T of co" co" tjT io co" !>■" oo" of
10r*lCOCO<M'— lOW05Q0NCD»n^
rHCqc0^lOC01>l>l>C0050'-lCs|
oooooooooooooo
oooooooooooooo
oooooooooooooo^
o" o" o" o" o" o" o" co" o" o" o" o" o" o"
i-HCS|CO'^10COl>t>C0030<-ICslCO
I— I I— I I— I I— I
€0-
oooooooooooooo
oooooooooooooo
°„ °^ ° °. ° ° °„ °„ 0* 0„ 9L °- °« °-
rH of CO" "tf" lo" CD" t>" tT CO" G? O" r-4 of co'
COCDTPOJOCOCOO^oqi-lOt-lO
i-icqco^Tt<ioiocoi>cooooo
oooooooooooooo
oooooooooooooo
o^ o^ o^ o^ or o^ o^ o^ o^ o^ on o q ©
ccf co co" co" co co" co" co" CO co" CD CD CD CD
CDCDCOCDCOCDCOCDCDCOCDCOCDCD
■ee-
oooooooooooooo
oooooooooooooo
o^ on o^ o^ ©^ ©^ ©^ ©^ ©^ ©^ ©^ ©^ ©^ ©„
o" o" o" o" o" o" o" co" o" o" o" o" o" ©
ooooooocooooooo
i— ioqcoTfiiocoi>t>coo50>— icqco
ft
Financial Factors 147
with other factors, allow concerns to pioneer markets in new, grow-
ing locations. At the outset, the market can still be profitable if the
sales result is considerably below the future expected volume or if
the actual volume is considerably in error on the low side from the
sales forecast. As volume at a location rises, the profit percentage
increases substantially. From a breakeven point at $733,000 sales,
the results in Table 7-3 show that at a $1,300,000 volume, the margin
is 3.92 per cent of sales. In turn, as a competitor encroaches on the
market of a store, the original super still can suffer a considerable
volume decline and remain profitable.
A business with high fixed expenses, like the steel industry, des-
perately needs added sales. Why then has the supermarket striven
for large volume per store, since its fixed expenses are low and since
the net profit tends to increase at a decreasing rate? As sales rose
from $800,000 to $900,000, according to the figures in Table 7-3, the
profit rose from $6,000 to $15,000, an increase of 150 per cent. As
sales rose from $900,000 to $1,000,000, net earnings rose from $15,-
000 to $24,000, an increase of only 60 per cent.
The answer commonly advanced is that even though the profit
margin is modest, it becomes a sizable dollar amount when related
to a large volume. This is true as evidenced by the data in Table 7-3
for the representative super at its $1,100,000 volume. However, this
is only a partial answer to the super s success. Actually, for a given
market, the profit margin and the absolute dollar profit rise with an
increase in sales and will continue to do so until some added fixed
expense is incurred, which may result eventually because the market
could outgrow its present facilities. The market shown by the data
in Table 7-3 earns $33,000, or 3 per cent, at a volume of $1,100,000;
but at the $1,300,000 level, profits increase to $51,000, or 3.92 per
cent. Furthermore, profit expressed as a percentage of net worth
rises consistently and rapidly with volume. Profit as a percentage of
net worth was 20.12 per cent at the $1,100,000 level; but at the $1,-
300,000 volume, the rate rose to 31.10 per cent. Profit as a percentage
of net worth is further aided by the high degree of leverage in the
industry and by the policy of leasing fixed assets. Herein lies the key
to financial success of supermarket operation.
148 Supermarketing
From the viewpoint of management and store personnel, this in-
crease in volume, with the resulting increase in net profit percentage
on sales and equity, is vital. For example, consider the data of the
representative super in Table 7-1. If one additional family that
spends $1,000 per year can be induced to shop at that super as a re-
sult of the promotional effort, that marginal family will reflect the
following changes in operating results:
Sales $1,101,000
Fixed cost 66,000
Cost of sales 891,800
Variable cost 110,100
Total cost 1,067,900
Net profit 33,100
Profit as a % of sales 3.01
Profit as a % of net worth .... 20.18
Simply, this marginal family to the store is worth 0.01 per cent
increase in net profit on sales and 0.06 per cent increase in net profit
on equity. The marginal family appears highly significant and can
have a double-edged effect. A loss of a customer can drop profits
just as the addition of one can increase return.
RESULTS OF THE ANALYSIS OF CERTAIN FINANCIAL
STATEMENTS OF SUPERMARKET CHAINS
The preceding discussion has indicated the large financial re-
quirements of a single supermarket, the risk involved in pioneer-
ing new locations, the relatively specialized type of equipment and
building, and the problem of obtaining capital. These appear as de-
terrents to expansion. However, the industry has grown. Profits as
a percentage of sales have been modest. But what have the earn-
ings on the investment been for actual concerns?
Inasmuch as balance sheet statistics based on an industry study
are not available, the financial statements of selected supermarket
chains, which operated 6,379 stores out of the 17,024 units in 1956,
were studied. These revealed certain common characteristics. It is
not to be inferred that these results were typical of the entire indus-
try. The findings from this study presented in Table 7-4, when re-
Financial Factors 149
lated to the previous financial discussion, revealed the following
data:
1. A large rate of return on the investment was realized by the
owners. For the year 1950 the highest return was that for Colonial
Stores, with a net profit before taxes of 34 cents on every dollar of
owner's equity. In 1956 Market Basket earned 44 per cent on its
equity. In the postwar years the rates of return on ownership funds
have been consistently large. A high rate of return has been reported
typical of this industry but has not been regarded excessive in view
of the risks involved.28 A favorable profit showing has been held
essential for expansion financed from earnings and creditor's
funds.
2. The trend has been toward larger indebtedness as compared
with the net worth. In many cases studied, owners and creditors in
the postwar era had almost equal funds invested. The owners tended
to "trade on the equity" fully.29 By this policy of profitably control-
ling and using larger resources than their own funds permitted,
supermarket operators were able to get large returns on their invest-
ment. The relative stability of this type of business, food, enabled
large borrowing.
3. There was a limited use of suppliers' funds to finance the in-
ventory, although the trend is toward a heavier current debt as com-
pared with the inventory. The increase in current debt is accounted
for largely by borrowing on a short-term note basis for current ex-
pansion funds.
4. The bulk of the debt has been of a fixed nature in connection
with the acquiring of new outlets, the remodeling of existing units,
and the rising equipment needs.
5. There has been a trend toward financing new store buildings
by many of the companies. Inventory represents less of the total as-
sets, and a greater percentage of fixed assets to total assets has been
28 "Methods of Financing Store Construction," Super Market Merchandising,
op. cit.
29 Use of borrowed funds or stock with a limited return is known as trading
on equity. See Harry G. Guthmann and Herbert E. Dougall, Corporate Finan-
cial Policy (New York: Prentice-Hall, Inc., 1955), p. 99.
I4
w
PQ
<
•^ i— i
« a
"K «
mm OS
O «H
.2 12
J« OS
>% cu
o *-
at o
.2 '3
3 3
s6
•I*
o I
CM it
3 a
S en
ss8
CO t> lO ^ CO
OS TjJ CO TjJ 05
CD 00 C5 CD C5
rH rH lO CD ^
WCONC^O
co cq co i> cm
■^cq^Hco
co p co nj oq
tentory to
assets, in '
J9
l> Ti" 1> Ttf <J>
co ^ cm Tf cm
O t-" CO CO c4
^ CM ^ CO CO
© rH rH T)* GO
"tf CO T}< CM CO
CM CM rH l> Ttf
CO CO CO "* CO
£38
O) 1003 1
CO 1 CO rH 1
ON INO
op 1 qn
lO lO 00 1 tjh
CD CD 05 I 1>#
CD O | 1 CO
qco 1 1 co
O 05
CO lO Ti"
CO* 05 O 05
CO CM lO CO
i-H csi CD l>
lO CO ^ CO
CM © rH
tf
CO
°>
2 9*4
SaSg
05
CO
"~t Hi H-^ r-v
CO
aiS
150
05
OOOOM^
l> 1> i— I r-H i— I
ddrlrirl
•DOCOMO)
o' rA © rA ©
C5 CO CO CO rH
05 Q5 lO rH p
OOHHrl
O CO rH O CM
•"3* Tjt lO ^ "Jf
co' d co oq od
CM Tt< rH CO rH
CO 00 o I
l> I CM O I
CO lO* Tj"l
r-i rH CO
T}H CM rH rH N
Tj^ ^ t- ID rH
I co o I
I o co I
CM <-i r-i
6 6 2
.J3 CO 0)
LP T5 aj 3 aS
£ r? _ W r-i
2 co'g 2 3
to 8 § 2 &
§« E?3ra
S ^ a £ a
S • 33 o aj
CO lO rH CO CO
CD 05 rH rH CD
HCDN00H
CM CO CM CM CO
CO O I CM C5
rH t> | HO)
d cm* d *-"
co co co co
CD TH CD rH CM
CO o
CD CO
O 05
CO o
o
U
C/2
<Z1
o
U
e
o
6
U
O
•a "S
'a
CJ
&
u
CD
r3
Cfl
OS ™
rSS
r3
£
""3
O O aJ
o o *a
r«
CD
r->
CM rH 05 05 K5
*D 1> O rH CO
co" n* tj* o5 1>
CM CO Tt1 rH CM
CD o O I CO
oo p o I p
t> d co io
CM CM CM CM
W 05 CM ^ CO
■"i 05 CM CO rH
*-l C$ rA G> r-4
CO o CM
CO rH lO
r-\ rH O
o
a
6 8 "I
CD >^ "S
2 S S
<u o
o co
•SJ3
a as
Ph co
CO CM 00 CO 05
q io c» q n
rH rH O O O
T^
1 CO 00 1
CO CM
1 CM oo
CO rH CO
1 «
00 00
CO
1 rH CO 1
lO CM
1 1> lO
P 00 ID
1 CM
rH 05
d
rH O
O rH
d d
odd
rH
O rH
CO 05 05 l> CD
t> lO CM CM p
Tt" d io tj" d
rH CO CM CM CM
CO 00
CO CM
co
1> 1> CD !> 05
cq n q h cq
^$ d rA rA ^
co co
oo co
S S
CO M
"S^ c;
ih -3 <D « c3
S3 ft 2 *43 £P
tH ft'gvgfl
c3 O 3 H CD
co c/5. co H !>
■8
Financial Factors 151
noted. Most concerns in the postwar era had larger net asset hold-
ings in equipment and buildings than in merchandise.
SUMMARY
In summary, a modern supermarket is not a small business. The trend
has been toward larger assets per store. Even the minimum-volume supers
require a sizable outlay compared with that of the economy stores of the
late 1920's. Rising equipment needs and costs plus the trend toward
building in outlying locations have necessitated larger investments in
fixed assets. Finding suitable quarters to rent has been a problem, par-
ticularly in the postwar period. Capital for expansion has been needed
and obtained from many sources including the capital markets. These
issues were met when the sizable profit possibilities of the industry were
discerned. However, the trend toward real estate acquisitions has mili-
tated against profits to some extent, and management must assess whether
supers are in the merchandising or real estate business. Finally, once a
given location is established, there is a wide latitude in volume over which
a store can operate and still be profitable. However, the sales and cost
structures in this industry are such that increased volume augments con-
siderably the profit rate expressed as a percentage of sales and enhances
substantially the profit rate expressed as a percentage of net worth.
8
EARLY SUPERMARKET
IMPACT ON THE
FOOD STORE INDUSTRY
INTRODUCTION
The development of the supermarket industry and the factors re-
sponsible for its innovation and growth have been presented in the
seven preceding chapters. It is the purpose of this and the subse-
quent three chapters to examine the influence that the supermarket
industry has tended to exert on the food and allied industries. The
approach is to
1. Study qualitatively the early supermarket impact on small com-
bination markets and grocery stores in the Los Angeles area and
the East.
2. Follow quantitatively the movement of the large food chains
toward supermarket operation, with special reference to the Great
Atlantic and Pacific Tea Company.
3. Measure the strong trend within the supermarket industry to-
ward horizontal integration in the post- World War II era.
4. Measure statistically the changes in the over-all pattern of
food store sales in the year 1958 as compared with that of 1929.
This chapter examines qualitatively the early supermarket impact
and the movement of the large food chains toward supermarket
operation. The importance of early impact is that ( 1 ) it offers a key
to shifts and trends in the pattern of food store sales that were to
152
Early Supermarket Impact on the Food Store Industry 153
follow, and (2) it furnishes a better understanding of the statistical
analysis in which the 1958 pattern is compared with 1929.
LOS ANGELES AREA SUPERMARKETS
Supermarts conforming to our definition in this book were in op-
eration in the late 1920's in California, particularly in Los Angeles.
One source estimated the number of supermarkets in the Los An-
geles area as follows: x
1929 25
1930 39
1931 51
1932 79
1933 103
From 1929 to 1933 the estimated volume for these stores rose from
$3,500,000 to $22,000,000, an increase of nearly 600 per cent.
Another source indicated as follows:
No attention was paid to the first super market in the Los Angeles area
about five years ago (1928) or the increase in the number of such markets
up to nearly 250, including about 200 large "drive-ins." Returning travelers
now say they are amazed at the size and beauty of the super markets in
Southern California, at their attractive methods of display and their
clever merchandising stunts. They are crowded all day, drawing trade
from a radius of eighty blocks away and do approximately 40 per cent of
the total grocery business of the territory. Leaving 30 per cent each to the
chains and independents has made pretty hard going for the chain stores.2
A third source is quoted as follows :
One of the directing heads of a large food company recently showed
Printers Ink some figures received from an authentic source in Los An-
geles. These show that a year ago (1932) there were 160 market stores
in Los Angeles, while today (1933) there are 260 such stores. It is esti-
mated these stores are doing about 35 per cent of the food volume of Los
Angeles. . . . The 500 chain stores are getting about 21V£ per cent. The
remaining 44^ per cent is going to about 3300 independent stores, which
1 M. J. Rowaldt, "Inside Figures of a Los Angeles Super," Progressive Grocer,
XVI, no. 1, January, 1937, p. 43.
2 H. M. Foster, "Threat of the Supermarket," Sales Management, XXXII, no.
9, April 20, 1933, p. 436.
154 Supermarketing
is approximately close to the volume that those independents have been
doing right along.3
This same source also indicated that several years earlier only 14
per cent of the food store sales had been transacted by supers, while
the small independents transacted about 44 per cent of the total food
store volume. These statistics indicate the sales these "market stores"
gained at the expense of the chain stores.
Another writer indicated the presence of 104 large drive-in "mar-
ket stores," as they were called in the Los Angeles area, on January
1, 1929.4 People drove to these outlets in such numbers that the de-
velopment of these "market stores" had a depressing effect on the
chains. In an effort to join the movement, chain stores took over
some of the departments in these large drive-in markets.5
In summary, writers at this time were of the opinion that these
large "market stores" captured in a relatively short time a notice-
able portion of the grocery and combination market sales in the Los
Angeles area. This was largely at the expense of the chains. While
other rough estimates on the depth of penetration varied, they
judged that by 1933, supermarket sales were about 35 to 40 per cent
of the available grocery store and combination market volume.
INVASION OF THE EAST BY THE "CHEAPY"
SUPERMARKET
The wide publicity and uproar that accompanied the opening of
the Big Bear Market in Elizabeth, New Jersey, led independent
grocers and chains alike to recognize this menace.6 Although the
super was considered a depression product, they sought to eradi-
cate it. But the Big Bear fought back and made headline news,
3 C. B. Larrabee, "Grocery Manufacturers Condemn Supermarket Price Cut-
ters," Printers Ink, CLXII, no. 9, March 2, 1933, p. 41.
4 Walter Van de Kamp, "An Innovation in Retail Selling," Magazine of Busi-
ness, July, 1929, p. 28.
5 S. L. Brevit, "Drive-In Department Store Gaining Popularity in the West,"
Sales Management, XXX, no. 3, January 17, 1931, p. 118.
6 M. M. Zimmerman, Super Market Spectacular Exponent of Mass Distribu-
tion (New York: Super Market Publishing Co., 1937), p. 27.
Early Supermarket Impact on the Food Store Industry 155
while Giant Tigers, Big Chiefs, and a host of other similarly named
"cheapy" supers multiplied in many parts of the country.7
Briefly, the following tactics were used to oppose the Big Bear
Market, with pressure originating from both independents and chain
operators: 8
1. A local drive was initiated to license all retail stores, with the
implication of refusing to license supermarkets.
2. Parking limitations were imposed against the supers.
3. Many annoying small local ordinances were imposed against
the Big Bear.
4. Union pickets had relatively free play.
5. Newspapers were coerced into refusing to carry Big Bear ads.
6. The State Retail Association attempted to push through legis-
lation in New Jersey that would curb Big Bear and other supermar-
kets.
7. The Associated Manufacturers of America of Grocery Products
drafted a bill to be introduced in all state legislatures against price
cutting. Provisions of this bill, "An Act to Protect Intrastate Com-
merce Against Unfair Price Competition," included the following:
a. The term unfair price competition means the advertisements
or offer of an article of merchandise at or below its purchase
price in the course of intrastate commerce.
b. Unfair price competition is unlawful and violators shall be
guilty of a misdemeanor and if convicted, suffer penalty.
c. The Attorney General's duty is to prosecute in the proper state
courts.
d. Any person injured by unfair price competition which is out-
lawed by this act may sue and shall receive three-fold damages
sustained plus costs of the suit.
But all these legal maneuvers were in vain. Supermarkets mush-
roomed; nationally advertised brands continued on sale in the stores;
known brands of merchandise were purchased in many instances
directly from the manufacturers. Even wholesalers started to sponsor
Ubid.
8 Foster, op. cit., p. 437.
156 Supermarketing
their own supermarkets or to work in close relationship with supers
on narrow cost-plus arrangements.9
THE SMALL INDEPENDENT GROCER VERSUS
THE "CHEAPY" SUPERMARKET
The "cheapy" supermarkets in this early period did not exist in
sufficient numbers to affect appreciably the national sales of the
small independent grocers as a group. Data for the years 1929 and
1935, as shown in Table 8-1, indicate that ( 1 ) the number of large-
TABLE 8-1 *
Statistics on the Number and Volume of Sales of Large Combination
Markets in the United States for the Years 1929 and 1935
(in thousands).
Dollar
192£
)
1935
sales volume
classification
Number
Sales
volume
Number
Sales
volume
300,000 to 499,999
500,000 to 999,999
1,000,000 and over
58
20
2
80
$21,492
13,083
6,641
264
100
25
389
$ 97,253
66,915
39,119
Total f
$41,216
$203,287
* U.S. Bureau of Census, Census of Business, 1935, Retail Distribution Part
II, Vol. 1, Government Printing Office, Washington, D.C., pp. 2-21.
f These figures give the closest census statistics on the number of supermar-
kets existing in this period. No other statistics, even from private sources, were
available. These data underestimate slightly the number of supermarkets, inas-
much as the accepted definition in this thesis includes markets with $250,000
sales volume and up.
volume combination markets increased from 80 to 389, and ( 2 ) their
sales volume rose from $41.2 million to $203.3 million. Yet this $203.3
million volume of the large combination markets was only 2 per cent
of the total food store sales of the country, which totaled $9.71 bil-
lion in 1935.10
In the many sections of the country where "cheapies" failed to
9 Zimmerman, op. cit., p. 29.
10 U.S. Bureau of the Census, 1951 Statistical Supplement, Survey of Current
Business, Government Printing Office, Washington, D.C., 1952, p. 25.
Early Supermarket Impact on the Food Store Industry 157
open, the battle of the chains versus the independents still waged.
The widely publicized supermarket was regarded as a depression
product which would soon disappear.11 But in the areas adjacent to
operating supermarkets, independent grocery stores and small com-
bination markets suffered losses in volume. Some independents, after
the advent of the supermarket, reported losses of 30 to 40 per cent
of sales volume.12 It was in these areas that grocers reviewed their
operating policies.
Certain of the choices open to the independent grocers were to
1. Join the movement toward supermarket operation.
2. Control expenses closely.
3. Switch to self-service or partial self-service.
4. Improve the service and try more to please the customers.
5. Add meats and switch to combination market operation.
6. Join cooperatives or buying associations for the purchase of
staples at low prices in order to compete with the supers and the
chains.
7. Work with wholesalers closely on a variety of plans in order to
cut distribution costs.
8. Shift the hours of operation.
In reviewing the early impact of the "cheapy" supermarket, it can
be concluded that the small independent grocer lost in sales vol-
ume upon competition with a nearby supermart. Generally, the
closer the independent was to the super, the greater the loss; and
some "cheapy" supers drew customers from as far as 50 miles away.13
Not only did the independents covered here lose upon competing
with nearby supermarkets, but the chains which are reviewed in the
next section also lost.
FOOD CHAINS VERSUS THE "CHEAPY" SUPERMARKET
To review briefly the history of the supermarkets, the chain stores
were not the innovators of the supermart, according to Malcolm
11 Foster, op. cit., p. 436.
12 Zimmerman, op. cit., p. 44.
13 Ibid.
158 Supermarketing
P. McNair.14 In fact they were slow in adopting its format. Chains
had developed a system of economy stores located close to the cus-
tomer; these stores, except for differences in color and layout, were
modeled after each other. Gradually in the late 1920's chains began
to add meats; some offered services such as credit and delivery, did
local advertising, and maintained all-day operations. These attempts
at differentiation were quickly limited by competing chains.15 The
dominant chain, the Great Atlantic and Pacific Tea Company,
boasted 13 per cent of all grocery store and combination market
sales in 1929.16
Suddenly their price advantage was stolen from them by the
"cheapy" supermarket. The alacrity with which the large super
chains rallied to shift operations varied among the leaders. In 1935
the Kroger Company met competition in its home town of Cincin-
nati from the Albers Supermarkets by operating supers under the
name of Pay'n Takit. On the Pacific coast, Safeway Stores, Incorpo-
rated, closed more than 70 of the Piggly Wiggly units purchased
several years previously, abandoned more than 250 of its other
smaller units, and replaced them with supermarkets. First National
Stores in the New England region started toward supermarket op-
eration in 1937.
Statistics on the total number of stores of the five largest volume
food chains for the years 1934 to 1940 are included in Table 8-2.
Each company reduced the number of stores it operated. During the
same interval the total dollar volume for these concerns increased,
as shown by the statistics in Table 8-3. While the figures do not
specifically indicate the number of supermarkets, they represent an
over-all movement to close small economy stores and replace them
with fewer but larger units of the supermarket type.
14 Testimony given at the trial, United States v. The Great Atlantic ir Pacific
Tea Company, U.S. Circuit Court of Appeals, 7th district, Docket 9221, Records
and Briefs, Vol. II, p. 194.
15 T. N. Beckman and H. C. Nolen, The Chain Store Problem (New York:
McGraw-Hill Book Co., Inc., 1938), p. 137.
16 Sales for A & P in 1929 were $1.04 billion; grocery store and combination
market sales in 1929 were $7.4 billion. See Table 8-5.
Early Supermarket Impact on the Food Store Industry 159
TABLE 8-2 *
Number of Stores in the Five Largest Food Chains for the
Years 1934 to 1940.
1934
1935
1936
1937
1938
1939
1940
A & P
14,716
14,610
14,446
13,058
10,671
9,021
7,073
Kroger Co.
4,352
4,250
4,212
4,212
3,992
3,958
3,727
Safeway Stores
3,228
3,330
3,370
3,327
3,227
2,967
2,671
American Stores
2,859
2,826
2,816
2,620
2,416
2,272
2,157
First National Stores
2,623
2,556
2,473
2,350
2,244
2,137
1,923
* Moody's Industrial Manuals, 1935, 1936, 1937, 1938, 1939, 1940, and 1941.
TABLE 8-3 *
Sales for the Five Largest Volume Food Chains for the
Years 1934, 1937, and 1940 (in millions).
Company
1934
1937
1940
A& P
$820
$907
$990
Safeway Stores
242
381
399
Kroger Co.
221
242
258
American Stores
114
115
124
First National Stores
105
120
131
* Moody's Industrial Manual, 1941.
The remainder of this chapter is concerned with the detailed re-
action of the Great Atlantic and Pacific Tea Company to the super-
market development. The general practices adopted by this indus-
try leader have appeared to be in line with those of the other large
food chains. All the food chains were confronted by the supermarket
development; all followed the same common policy of eliminating
small stores and opening supermarkets; they differed only in the
speed of change-over. In this respect A & P tackled the problem of
conversion at a rate more accelerated than that of any of the big
concerns.
160 Supermarketing
THE CASE OF THE GREAT ATLANTIC AND PACIFIC
TEA COMPANY
In the subsequent text, an examination of A & P's reaction to the
supermarket invasion is presented in detail.
Initial Attention Given Supermarkets by A & P
John A. Hartford, president of The Great Atlantic and Pacific Tea
Company, testified that his attention was first brought to super-
markets by the operation of King Kullen in the East Division 17 of
A & P.18 In February, 1934, the Central Division Executive Commit-
tee minutes reported the opening of a supermarket in Columbus,
Ohio, by a former A & P employee.19
In the New England Division between 1930 and 1934, a great
many independent supermarkets were organized. These independ-
ents operated at a much lower expense rate than the A & P stores,
and their lower operating costs were reflected in lower prices.20 Dur-
ing 1935 the Great Bear and Giant Tiger supermarket chains were
expanding in the Southern Division.
In the Central Western Division of the A & P structure, sales had
fallen, and the gross profit rate was considerably higher than the
gross margin of the supermarket competitors according to Di-
vision President Toolin.21 He took John A. Hartford on a tour of
Detroit in 1934 and showed him what competition had done in the
way of opening supermarkets. Toolin convinced President Hartford
that A & P should change its mode of operation; but others in high
authority still thought the supermarket was temporary. They further
believed that the outstanding operating record of the supers was
obtained by selling under cost and that A & P should not sell below
cost; therefore they opposed this type of operation.22
17 In order to facilitate control of this food giant, the management divided
the company into six regional operation divisions.
18 U.S. v. The Great Atlantic 6- Pacific Tea Co., op. cit., p. 194.
19 Ibid., p. 195.
20 Ibid., p. 196.
si Ibid., p. 198.
22 Ibid.
Early Supermarket Impact on the Food Store Industry 161
Number of Unprofitable A & P Stores in the 1930's
That the management of the world's largest food retailer was
cognizant of the supermarket is evident. At first the wide-scale op-
erations of the A & P mitigated the supermarket influence; but as the
supers increased, the number of unprofitable A & P stores steadily
mounted, as shown by the figures in Table 8-4. The peak number of
unprofitable units in the history of the A & P was reached in 1937
when one-third, or 4,382 stores, of the 13,264 outlets were in the
red. But the substantial change in operation that took place from
1937 to 1941 literally wiped out small unprofitable units.
TABLE 8-4
*
Total Number of Stores and Number of Unprofitable
Units
of the A & P Co. for the Years 1933 to
1941.
Number of
% of
Number of
unprofitable
i
mprofitable
Year
stores
stores
to total
1933
15,095
3,060
20.0
1934
14,995
3,871
25.8
1935
14,885
3,651
24.7
1936
14,697
3,467
23.6
1937
13,264
4,382
33.3
1938
10,827
2,354
21.7
1939
9,088
1,619
17.5
1940
7,143
889
12.4
1941
6,165
639
10.3
* United States v. The Great Atlantic and Pacific Tea Company, U.S. Circuit
Court of Appeals, 7th district, Docket 9221, Records and Briefs, Vol. 1, p. 291.
A & P Loss in Relative Sales Position
Among the Food Stores
The economy store operation of the A & P reached its zenith in
1930, at which time the company operated 15,422 stores in the
United States. Volume attained a peak of $1,049 billion, as shown
by the statistics in Table 8-3. From then until the company con-
verted to supermarket operation, the trend in volume of sales was
downward. For example, the vice-president of the Eastern Division
162 Supermarketing
indicated that prior to 1930, A & P had a very profitable operation
in the Brooklyn unit.23 But from 1930, when supermarkets were first
opened by independents, there began a steady downward trend in
the competitive position which was a direct result of supermarket
competition. Sales in the Brooklyn unit dropped from $39,400,000
in 1930 to $25,400,000 in 1937; during the same period profits
dropped from $1,200,000 in 1930 to a $400,000 loss in 1937.
In the Central Western Division, Albers, a supermarket chain,
started about 1934. After two years Albers, with only eight super-
markets, enjoyed 9.5 per cent of the food store business in Cincin-
nati; the A & P volume transacted by 50 stores had dwindled to 7.7
per cent of the food store sales.24
The statistics in Table 8-5 further evidence the loss of the A & P
competitive position. These figures indicate that the sales of A & P
dropped from $1,039,000,000 in 1929 to $864,000,000 in 1937, a de-
crease of 17 per cent; total grocery store and combination market
sales in the nation decreased from $7.35 billion to $7.25 billion, a re-
duction of 1.4 per cent. In terms of total food store sales, which in-
clude the specialty food shops as well as the grocery stores and com-
bination markets, the A & P loss in relative position also was
pronounced.
A & P Experimental Supermarkets
One of the unsolved questions that confronted the management
of this mighty food chain was the true operating costs of a super-
market. A & P had adhered to the principle of not selling merchan-
dise at a price less than cost; and the management questioned
whether the competing independent supers could actually sell mer-
chandise at such cheap prices and still obtain a profit.
In the spring of 1935 the Central Western Division opened a
supermarket in Paducah, Kentucky, and attempted to operate at a
gross margin of 13 per cent and a net profit of 2 per cent.25 Next,
14 stores were opened in Nashville, Tennessee, and offered lower
23 ibid., p. 195.
24 ibid.
25 ibid., Vol. VI, p. 240.
Early Supermarket Impact on the Food Store Industry 163
TABLE 8-5
Total Sales of A & P, All Grocery and Combination Markets
and All Food Stores for the Years 1929 to 1943.
Total
grocery and
combination
Total food
Number
Dollar volume *
store sales f
store sales f
Year
of stores *
(in billions)
(in billions)
(in billions)
1929
15,150
$1.04
$ 7.4
$11.0
1930
19,422
1.05
—
—
1931
15,371
0.99
—
—
1932
15,108
0.85
—
—
1933
14,818
0.80
—
—
1934
14,716
0.83
—
—
1935
14,610
0.86
6.4
8.4
1936
14,446
0.89
6.8
9.0
1937
13,058
0.86
7.3
9.7
1938
10,671
0.87
7.2
9.5
1939
9,021
0.98
7.7
10.2
1940
7,073
1.10
8.3
10.9
1941
6,042
1.35
9.6
12.6
1942
5,821
1.38
12.1
15.8
1943
5,751
1.47
13.3
17.5
* 17. S. v. Great Atlantic and Pacific Tea Company, U.S. Circuit Court of Ap-
peals, 7th district, Docket 9221, Records and Briefs, Vol. I, p. 322.
f U.S. Bureau of the Census, 1951 Statistical Supplement, Survey of Current
Business, Government Printing Office, Washington, D.C., 1952, p. 8.
prices than other A & P economy stores in that city on the entire
line of merchandise. This division expanded experimental opera-
tions to Cincinnati where competition raged between independent
Albers and Kroger 's Pay n Takit stores.
In 1935 the A & P Eastern Division experimented with 100 stores
known as Baby Bears in the Pittsburgh area.26 Prices were cut in
these stores on merchandise that was directly delivered from carload
lot purchases. These Baby Bears emphasized in their advertising the
lowest prices in town on this carload lot merchandise.
26 ibid., Vol. II, p. 162.
164 Supermarketing
The available evidence from the testimony indicated that these
experimental stores were for the most part developed independently
by the separate divisions with little or no support from the central
management. In 1937 the central management reviewed the situa-
tion and decided to switch to supermarket operation. Its aim was to
operate each super at a gross margin of 12 per cent, expenses of 10
per cent, and a net profit of 2 per cent.27
A & P Joins the Supermarket Industry in 1937
The success of the divisional experimental supers, coupled with
the loss of sales, profits, and competitive position in the conventional
stores, finally resulted in a decision by top management to shift the
operational policy. The data in Table 8-6 indicate the complete re-
TABLE 8-6 *
Statistics on Total Number of A & P Stores, Number
of Supermarkets, Total Sales and Supermarket
Sales for the Years 1936 to 1943
(sales in millions of dollars).
Number of
Number of
Total dollar
Super
Year
stores
supers
sales
sales
1936
14,446
20
$ 889
$ 00
1937
13,058
282
864
53
1938
10,671
771
866
220
1939
9,021
1,119
976
401
1940
7,073
1,396
1,099
594
1941
6,042
1,594
1,348
846
1942
5,821
1,633
1,435
934
1943
5,751
1,646
1,259
761
* United States v. The Great Atlantic and Pacific Tea Company, U.S. Circuit
Court of Appeals, 7th district, Docket 9221, Records and Briefs, Vol. 1, p. 323.
versal of policy and the rapid conversion to supermarket operation
that this giant food chain made within six years. At the close of
1937, A & P was already operating 282 supermarkets. Yet, President
Hartford expressed concern over the pace of supermarket develop-
27 Ibid., p. 196.
Early Supermarket Impact on the Food Store Industry 165
ment and urged that everything possible be done to speed up the
program. He suggested the advisability of having special men con-
centrate on the search for new locations.
In addition to concentrating on supermarket expansion, the man-
agement endeavored to ascertain whether the larger or smaller
supers were more profitable. Statistics from the Central Western Di-
vision indicated that the larger type of supermarket with weekly
sales of $10,000 and over had an operating expense advantage over
the stores with $6,000 or less weekly volume.28
Data in Table 8-6 indicate that by 1941, the 1,594 units (or about
29 per cent) of all A & P stores were supermarkets; and these units,
with sales of $846,000,000 accounted for 63 per cent of the total sales.
However, following 1941, supermarket expansion by the A & P was
handicapped because of World War II. The management reported
operations were hampered by gas rationing, food rationing, and
man power shortages. Furthermore, some customers switched to
stores where they could establish personal relationship with the
owners.
Effect of A & P Supermarket Operation on Its
Gross Margin, Expense, and Profit
Once the supermarket independents became important in the food
store field, the operation of the industry giant was adversely affected.
From 1932 until A & P joined the supermarket operation, the aver-
age A & P store was forced to operate on a smaller gross margin in
order to meet price competition. Even though expenses were re-
duced through close control, profits dwindled. However, after 1937
company operations improved because of its switch to supermarket
activity. By 1941 the supermarket division of A & P was working on
a gross margin of 12.4 per cent, an expense of 10.51 per cent, and a
net profit of 1.96 per cent as indicated in Table 8-7. This was a
vastly superior showing compared with the economy stores that still
remained in operation in 1941. A & P gained in its relative sales posi-
28 ibid.
166 Supermarketing
tion in the grocery store and combination market industry after it
switched to supermarket operation; whereas A & P had only 11.7
per cent of the total grocery store and combination market sales in
1937, it increased its position to 14.1 per cent of the industry sales
byl941.29
SUPERMARKET ADVANTAGES FOR LARGE
FOOD CHAINS
The numerous red-front A & P units scattered throughout the
country were the leaders in food store retailing prior to 1930. Other
large chains had a similar type of operation.30 Then, almost simul-
TABLE 8-7*
Operating Results of the A & P Detailed into Economy Stores
and Supermarkets for the Year 1941 (sales in thousands).
4,448 Economy stores
Dollar sales % of sales
1,594
Supers
Dollar sales
% of sales
Weekly sales
Cost of sales
$6,276
5,208
100.00
82.99
$17,336
15,169
100.00
87.53
Gross margin
Expenses
1,068
966
17.01
15.39
2,167
1,820
12.47
10.51
Net profit
$ 102
1.62
$ 347
1.96
* United States v. The Great A & P Tea Co., U.S. Circuit Court of Appeals,
7th district, Docket 9221, Records and Briefs, Vol. I, p. 323.
taneously, the A & P and its brethren had to meet the challenge of
the supermarket, the NRA, the Robinson Patman Act, and chain
store tax laws. The supermarket was underpricing the food chains;
the NRA forced the chains to raise wages; the Robinson Patman Act
29 Statistics to make these calculations are contained in Table 8-5. The 1937
A & P sales were $864 million, and grocery store and combination market sales
were $7,300 million. In 1941 A & P sales were $1,348 billion, and grocery and
combination market sales were $9.6 billion.
30 Paul H. Ny strom, Retail Store Operation (New York: The Ronald Press
Co., 1937), p. 466.
Early Supermarket Impact on the Food Store Industry 167
restricted the buying advantages of the large operators; and the
progressively heavier chain store taxes levied on the number of units
operated stifled large multi-unit expansion.
Actually, the supermarket type of operation adopted by the A & P
and other large chains aided them to meet successfully the exist-
ing price competition. The advantages of supermarket operation
stemmed from the following:
1. Fewer stores resulted in reduced chain taxes per store.
2. The total cost of opening new stores was reduced since fewer
stores were opened.
3. Reduced operating costs as a percentage of sales were realized.
The principal disadvantage lay in the larger investment per store
with its accompanying risk.
SUMMARY
The independent operators were the innovators of supermarkets. Un-
like David versus Goliath, they tackled two adversaries, namely, the food
chains and the host of small independent food store operators. The super-
market methods of merchandising and store operation proved so success-
ful that they rapidly spread consternation among the chains and small
independents. The supers captured substantial portions of the volume in
the trading areas they invaded. The small independents, in the main,
either became supers or gradually disappeared from the scene. The chains
successfully competed by joining the supermarket movement. Chains sub-
stantially revamped operations and soon became dominant in the industry
volumewise. This change-over by the chains, as evidenced in this chapter
by the record of the Great Atlantic and Pacific Tea Company, was revo-
lutionary in nature.
SUPERMARKETS BECOME
BIG BUSINESS-
INTEGRATION
INTRODUCTION
In the preceding chapter, the initial impact of the supermarket on
the field of food store retailing was presented. The reaction of both
small independent merchants and giant food chains, with special
emphasis on the Great Atlantic and Pacific Tea Company, was meas-
ured. Through rationing restrictions beyond its control, the super-
market showed little growth and impact during the World War II
years. The only exception was the addition of nonfoods to the line in
order to sustain or build volume.
This chapter measures the impact of the supermarket in the post-
war era when the industry literally came of age. Food retailing be-
came big business, not only in the sense that larger and larger stores
requiring substantial investments were built in new locations, but
also through a strong trend toward concentration in the hands of
fewer and larger concerns.
CHAINS DOMINATE SUPERMARKET INDUSTRY
In the early 1930's all supermarts were independents. In the early
1940's chains began to make inroads. These chains were not neces-
sarily the big food concerns of the 1920's. Shrewd and capable mer-
chants who started with one unit built empires as exemplified by
Food Fair Stores and Albers Supermarkets. By 1950, according to
Progressive Grocer, about 37 per cent of the supermarkets with less
168
Supermarkets Become Big Business— Integration 169
than 37 per cent of the volume were still individual operations at
one location; by 1958 only 20.7 per cent of the supermarkets trans-
acting 18.2 per cent of the industry volume were one-unit operations
in an industry that now dominated all food store sales.1 Chain stores
in 1958 operated 66.6 per cent of the stores and transacted 69.1 per
cent of the supermarket industry volume.2
INTEGRATION
The entire supermarket industry has mushroomed in the postwar
era as indicated by statistics in Table 1-2; yet the chain members
have outstripped the independent operators in this aura of growth.
Integration has played an important role in the drive of the chains
to dominate this field since they used this device more frequently
than the independents. Although all chains have not grown at the
same rate, the most rapidly growing concerns generally have been
the principal users of integration.
Integration, which means the bringing of parts into a whole, has
taken two directions, namely, horizontal and vertical combinations.
In marketing parlance, horizontal or lateral integration occurs with
consolidations of two or more similar concerns performing the same
functions in the same stage of distribution. This occurs when one
supermarket concern purchases the store or stores of another super-
mart firm. Vertical integration refers to the operation by a firm of the
processes and functions in two or more stages of distribution or pro-
duction.3 Simply, a supermarket firm that operates its own bakery
and distributes the products through its outlets is integrated verti-
cally. Also, the supermarket concern that performs wholesale func-
tions by operating its own warehouse is integrated vertically. In-
herent in a successful combination is the reduction in expense that
results from the coordination of the various parts of the integrated
concern.
l See Table 1-3.
*lbid.
3 Paul Converse and Harvey Huegy, The Elements of Marketing (New York:
Prentice-Hall, Inc., 1958), p. 243.
170 Supermarketing
Supermarkets generally have employed both horizontal and verti-
cal integration. The usual practice has been for the smaller concerns
to integrate horizontally until they are large enough (have sufficient
outlets) to assume the major part of wholesale operations. The as-
sumption of the wholesale function is vertical integration of mar-
keting activity. Supermarkets obtain 81 per cent of their groceries
through their own central warehouses and an additional 10 per cent
through retailer-owned cooperatives.4 Supermarket chains or retail-
sponsored cooperatives design and operate their wholesale integra-
tion at different levels of volume. Some need about 12 to 14 retail
outlets doing from $15 million to $20 million in yearly volume to
make the entire operation a success. Certain larger chains may re-
quire as many as 25 stores doing at least $30 million in sales to be
serviced by the wholesale division in order to make the integration
profitable.
As the concerns attain sufficient size, they can extend vertical in-
tegration by entry into certain manufacturing operations and can
thus perform all the consecutive processes in food manufacture and
distribution. The extent of food manufacturing performed by food
chains is shown by the data in Table 9-1. In 1958 the 62 major chain
supermarkets owned 326 factories that produced and shipped $1,304
billion in products. Chain-branded products of $1,304 billion at
manufacturer's prices or $1,630 billion at retail prices ( adjusted for
a 20 per cent markup ) are slightly under 10 per cent of total chain
food store sales of $18,589 billion in 1958. The coffee and bakery
areas are two of the most frequently entered fields. Generally a
supermarket operation needs about $30 million in volume to make
the vertical integration into the bakery operation profitable. Other
areas invaded by supers include dairy products, mayonnaise, pre-
serves, and confections. Certain of the larger supermarket operations
are experimenting with or have entered into the meat-packing field
with 22 packaging and preparing plants in operation. Food process-
ing in the form of storing green bananas and tomatoes until they
^ "How the Super Markets Get Their Groceries," Super Market Industry
Speaks (Chicago: Super Market Institute, 1956), p. 14.
Supermarkets Become Big Business— Integration 171
TABLE 9-1 *
Number of Food Manufacturing Plants Operated by 62 Major
Food Chains and the Value of Shipments from These
Establishments for the Years 1954 and 1958.
Number of Value of shipments
establishments (in thousands)
Kind of establishment
1954
1958
1954
1958
Meat packing
Prepared meats
Poultry dressing
Dairy products
Concentrated milk
9
11
2
32
12
9
13
4
41
12
$ 94,500
38,200
3,400
34,700
46,800
$ 149,000
78,100
7,100
54,800
57,200
Fluid milk
Canning and freezing
Bread and related products
Confectionery
22
11
126
6
27
13
147
7
57,500
77,000
289,500
31,000
95,900
99,100
379,500
43,200
Miscellaneous food preparation
Coffee, roasted or
concentrated
16
38
285
14
39
326
85,700
316,700
105,300
234,400
Total
$1,075,000
$1,303,600
* Federal Trade Commission, Federal Trade Commission Economic Inquiry
into Food Marketing — Interim Report, Government Printing Office, Washington,
D.C., June 30, 1959.
are ripe is performed on a large scale. The ultimate in vertical in-
tegration is exemplified currently by the Great Atlantic and Pacific
Tea Company with its widely known Ann Page, Jane Parker, Iona,
Red Circle, Bokar, and Whitehouse lines of products.
While the statistics in Table 9-1 indicate that the supermarket in-
dustry is expanding into the meat packing area through vertical
integration, a battle with the giant packers may be in the offing. The
meat-packing industry, one in which there is a high degree of con-
centration of power in a relatively few firms, has been hamstrung by
the Consent Decree of 1920. This decree resulted from action taken
by the federal government under the Sherman Anti-trust Act and
listed more than 100 products which the packers were not allowed
172 Supermarketing
to make, sell, or transport. In addition, the packers involved agreed
to divest themselves of businesses considered to be unrelated to the
preparation and wholesale distribution of meat products. In Novem-
ber, 1956, the Cudahy Packing Company filed a petition in the
United States District Court in Chicago, Illinois, seeking release
from certain provisions of the 1920 Decree. Two other parties to the
decree, Armour and Company and Swift and Company, also filed
petitions asking for similar relief. Extensive evidence demonstrating
the significant changes in the distribution of food products at all
levels since 1920 has been presented to the court; a decision is ex-
pected in 1961. Some of the possible areas of expansion for the meat
packers include diversification into allied food products, integration
through acquisition of common stock in supermarket chains, ex-
pansion into the area of frozen and prepackaged meats for the retail
trade to be sold under an identifying label, and development of new
operating methods.
CONCENTRATION AMONG MAJOR FOOD CHAINS
The major food chains currently dominate the supermarket and
food store industries volumewise. The sales statistics of ten of these
chains are recorded in Table 9-2 and show a phenomenal $10.1 bil-
lion increase between the years 1945 and 1958. The industry giant,
the Great Atlantic & Pacific Tea Company, had a sales rise from
$1,435 billion to $5,095 billion in this 13-year period, or an increase
of 355 per cent. Food Fair Stores, Incorporated, experienced a phe-
nomenal sales boost during this interval from $61 million to $734
million, or over 1,200 per cent.
Further evidence of this high degree of concentration in the retail
food industry is indicated by the statistics in Table 9-2. Ten of the
largest volume concerns with sales of $13.4 billion transacted about
one-fourth of all food store sales in the country in 1958.
It is not solely in the number of stores where strength of the large
chains lies. Examine the trend toward fewer and larger stores with
bigger investments per location, as shown by the statistics of Ameri-
can Stores Company in Table 9-4. The statistics of this company
exemplify the direction the large supermart chains generally have
Supermarkets Become Big Business— Integration 173
TABLE 9-2 *
Dollar Sales of Ten of the Largest Food Store Chains
for the Years 1945 and 1958 (in millions).
Company f
1945
J95S
Great A & P Tea Co.
$1,435
$ 5,095
Safeway Stores
615
2,225
Kroger Co.
457
1,776
American Stores Co.
224
866
National Tea Co.
107
794
Food Fair Stores
61
734
First National Stores
182
531
Colonial Stores
99
437
Grand Union Co.
55
504
Jewel Tea Co.
62
444
Total
$3,297
$13,406
* Moody's Industrial Manuals.
f In 1958, Winn-Dixie Stores, Inc., transacted $631 million in sales. However,
consolidated sales for this firm, which is the result of a merger in 1955, are not
available for the year 1945.
TABLE 9-3
Sales of Ten Major Supermarket Chains and
Total Food Store Sales for the Years 1945
and 1958 (in millions).
1 945
J958
Sales of 10 major supermarket chains *
Total food store sales f
10 major supermarket chains as a per cent
of total food store sales
$ 3,297
19,120
17.24%
$13,406
53,075
25.26%
* See totals Table 9-2.
f Facts in Grocery Distribution (New York: Progressive Grocer, 1959), p.
F-17.
taken to dominate the food store industry. Between 1945 and 1958,
American Stores followed a policy of integration while decreasing
the number of outlets from 1,954 to only 844; but in the same in-
terval, average sales per store rose from $118,000 to almost $1,000,-
000, and net income per outlet rose from $1,005 to $12,432.
174
Supermarketing
FOOD CHAIN DILEMMA-ACQUIRE OR EXPIRE
In the postwar era, the supermarkets became the largest class of
food stores, according to volume. In turn, the food chains as a group
gained volume and numerical superiority in the supermarket indus-
try. They were able to attain superiority over the independent supers
TABLE 9-4 *
Number of Stores, Sales per Store, and Net Income per Store for
American Stores Company for the Years 1945 to 1958.
Average
Number
sales per store
Net income
Year
of stores
(in thousands)
per store
1945
1,954
$118
$ 1,005
1946
2,012
156
2,237
1947
1,921
202
3,084
1948
1,833
227
3,089
1950
1,637
254
4,119
1951
1,505
312
4,727
1952
1,408
370
3,590
1953
1,289
421
3,948
1954
1,132
533
6,597
1955
1,076
581
6,520
1956
953
687
8,745
1957
903
864
10,731
1958
844
992
12,432
* Moody's Industrial Manual.
as to the number of stores and volume even though they eliminated
many small outlets. The food chains attained dominance by the
standard procedure of ( 1 ) continuously building and opening new
large units and (2) integrating horizontally through the acquisition
of going concerns. The Federal Trade Commission reported that 151
companies during the years 1953 to 1958 opened new stores and
acquired existing outlets which had sales of $3,908 billion and
$1.2999 billion, respectively, for the year 1958.5
5 Federal Trade Commission, Federal Trade Commission Economic Inquiry
Into Food Marketing — Interim Report, Government Printing Office, Washing-
ton, D.C., June 30, 1959.
Supermarkets Become Big Business— Integration 175
Further evidence of the extent of acquisitions is shown by the
data in Table 9-5. In the years 1949 to 1958, 83 supermarket con-
cerns acquired 315 operating companies which owned 2,238 stores
that transacted $1,916 billion in annual sales at the time of acquisi-
tion. The merger movement trend continues to increase. The year
1958 was the most active year for mergers, both as to the number
of companies active in acquiring outlets and as to the sales of the
stores purchased at the time of acquisition.
Among the food chains themselves, however, significant shifts
had been taking place in the pattern of sales. Statistics in Table 9-2
indicate remarkable growth for all major members of the industry;
but all concerns did not expand at the same rate. The fast-moving,
medium-sized chains appear to have made inroads in the relative
position volumewise at the expense of the giants in the industry and
the small-chain operators.
In order to assess this development in supermarket chain sales,
it is necessary ( 1 ) to measure changes in relative volume among the
large, medium, and small chains; (2) to summarize recent acquisi-
tions and mergers; (3) to examine the underlying forces behind the
merger movement; and (4) to indicate the impact on food store dis-
tribution.6
Changes in Relative Position Among Food Chains by Size
Only for the purpose of showing approximate size are the food
chains grouped into three classifications by volume. This grouping
includes large concerns with sales of $1 billion or more, medium-
sized chains with sales from $100 million to $999 million, and small
companies with sales of less than $100 million as of the year 1957.
This classification need not be sacrosanct in that large and small
concerns bordering on the $100 million and $999 million boundaries
have been active in mergers and could be considered for the pur-
poses of analysis in the medium-sized class.
6 The author first presented these ideas in an article, "Food Chain Dilemma —
Acquire or Expire," which appeared in the Journal of Retailing, XXXIV, no. 4,
Winter, 1958-1959, p. 216.
176
Supermarketing
TABLE 9-5
*
Number and Volume of Food Stores That Were Acquired
by Food Chains for the Years 1949 to 1958.
Annual sales
of stores
Number of
purchased
Number of
Number of
stores acquired
at time of
Year of
acquiring
concerns
as a result of
acquisition
acquisition
companies
acquired
the merger
(in thousands)
1949
6
6
72
$ 66,180
1950
5
5
5
3,889
1951
10
12
69
27,829
1952
5
10
273
67,343
1953
11
12
71
86,617
1954
17
20
70
60,580
1955
23
48
455
434,166
1956
36
70
439
397,325
1957
34
54
363
322,520
1958
38
83 f
78
315
421
2,238
450,003
Total
$1,916,452
* Federal Trade Commission, Federal Trade Commission Economic Inquiry
Into Food Marketing — Interim Report, Government Printing Office, Washing-
ton, D.C., June 30, 1959.
f This total represents the number of concerns that made acquisitions; it is
not based on a column total inasmuch as some companies made acquisitions
in more than one year.
The individual leader in the food chain field, by far, continues to
be the Great Atlantic and Pacific Tea Company, which in 1957 trans-
acted 27.44 per cent of all chain grocery and combination store sales,
as shown by the statistics in Table 9-6. Yet, the A & P together with
Safeway Stores suffered a loss in relative industry position among
the food chains in recent years. Although they followed the standard
practice of eliminating smaller stores and opening larger units, they
were inactive in the merger movement with one notable exception,
namely, Safeway 's expansion in the Des Moines, Iowa, market.7
7 The Merger Movement in Retail Food Distribution (Chicago: National As-
sociation of Retail Grocers, 1959), p. 15.
Supermarkets Become Big Business— Integration 111
This does not mean, however, that these concerns are losing their
share of total food store volume. For example, A & P had 9.1 per
cent of the total food store sales in 1951 and 10.1 per cent in 1958.8
TABLE 9-6
Chain Grocery Store Sales Classified by Volume,
Expressed in Dollars and as a Percentage of Total Chain
Grocery Sales for the Years 1951 and 1957.
1951
1957
Millions
Millions
Number of outlets
of dollars
% of total
of dollars
% of total
Chains with $1 billion and
over sales in 1957 *
Great Atlantic & Pacific
Tea Co.
$ 3,393
31.66
$ 4,769
27.44
Safeway Stores, Inc.
1,455
13.58
2,117
12.18
Kroger Co.
997
9.30
1,674
9.63
Subtotal
5,845
54.54
8,560
49.25
Chains with $100-999
million sales in 1957 f
2,922
27.26
6,267
36.06
Chains with sales less than
$100 million in 1957 \
1,951
18.20
2,552
14.69
Totals §
$10,718
100.00
$17,379
100.00
* Compiled from statistics published in the Federal Trade Commission report
entitled Federal Trade Commission Economic Inquiry Into Food Marketing —
Interim Report, Government Printing Office, Washington, D.C., June 30, 1959.
f Ibid.
X Calculated by subtracting total chain food store sales of $100 million or
more volume from total industry sales.
§ U.S. Bureau of the Census, Statistical Abstract of the U.S., Government
Printing Office, Washington, D.C., 1959, p. 834.
The other member of the billion-dollar volume classification, The
Kroger Company, improved its relative position through opening
new stores and the merger route. These three members of the billion-
dollar classification group acquired 179 stores transacting $240 mil-
lion in annual sales during the period 1955 to 1958.9
8 Federal Trade Commission, op. cit.
9 The Merger Movement in Retail Food Distribution, op. cit.
178 Supermarketing
The greatest increase in volume from 1951 to 1957 was made by
the medium-sized group of stores in the $100 million to $999 million
volume class. In 1957 these stores commanded 36.06 per cent of the
chain food sales as compared with only 27.26 per cent in 1951.
Mergers and acquisitions were responsible primarily for this gain.
This segment of chain food stores acquired 1,092 outlets transacting
$1,220 billion in annual sales during the period of 1955 to 1958.10
The small chains of less than $100 million in annual volume have
suffered a significant loss in relative position in recent years. They
have dropped in volume from 18.20 per cent to 14.69 per cent of
chain grocery and combination store sales. It was on this group,
multi-unit operators of less than 11 stores and single-unit concerns,
that the medium-sized chains made their raids. These inroads re-
sulted even though the chains of $100 million sales or less in turn
made acquisition among the smaller supermarket companies; these
acquisitions included 392 stores that transacted $443 million in an-
nual sales during the period 1955 to 1958.11
Acquisitions
The numerical record of mergers compiled by ten of the major
supermarket chains for the years 1949 to 1958 is summarized in
Table 9-7. All but the Great Atlantic and Pacific Tea Company have
participated to varying degrees in this movement; the most active
concerns in the merger movement have been the National Tea Com-
pany, Winn Dixie Stores, Incorporated, the Kroger Company, and
the Grand Union Company.
Specifically, what acquisitions have the major supermarket con-
cerns made? What marketing areas have they invaded? The A & P,
the major operator among the food chains as to volume and number
of outlets, has added no new stores through merger or acquisition
in recent years. Safeway Stores, Incorporated, the second largest
operation, has been a relatively minor factor nationally in the merger
movement, with its only major acquisition activity in the Des
io Ibid.
n Ibid.
Supermarkets Become Big Business— Integration ' 179
TABLE 9-7
Number and Volume of Food Stores That Were
Acquired by
Ten Major Food Chains for the Years 1949 to 1958.
Annual sales of
stores purchased
Number of
at time of
Number of of stores
acquisition
Name of company
acquisitions acquired
(in thousands)
American Stores Co.
5 93
$ 34,442
Colonial Stores, Inc.
10 99
121,906
Food Fair Stores, Inc.
6 67
107,731
Grand Union Co.
15 128
128,417
Jewel Tea Co., Inc.
2 43
56,234
Kroger Co.
5 130
174,064
Lucky Stores, Inc.
4 56
72,612
National Tea Co.
24 485
251,612
Safeway Stores, Inc.
25 67
33,016
Winn-Dixie Stores, Inc.
11 306
107 1,474
221,070
Total
$1,201,104
* Federal Trade Commission, Federal Trade Commission Economic Inquiry
Into Food Marketing — Interim Report, Government Printing Office, Washington,
D.C., June 30, 1959.
Moines, Iowa, market. Kroger, on the other hand, has been on a
constant program of acquisition. It recently acquired control of the
26 Henke & Pillot Stores of Houston, Texas, and the 25-unit Krambo
Food Stores, Incorporated of Wisconsin. Whereas Henke & Pillot
Stores were in an entirely new marketing area, the other merger put
Krambo and Kroger in direct competition with each other for more
intensive market coverage. Then, in 1958, Kroger acquired the 44
stores of Wyatt and Evans Food Stores in Texas. On April 6, 1959,
however, the Federal Trade Commission charged the Kroger Com-
pany with illegally acquiring since 1928 more than 40 corporations
and their 1,900 stores. The commission charged the acquisitions vio-
lated the antimerger laws in that they may result in a substantial
lessening of competition or a tendency toward monopoly in the
processing, manufacturing, purchasing, and distributing of grocery
products and in the sale of merchandise in retail grocery stores.
130 Supermarketing
In the classification of chains with annual sales of $100 million to
$999 million, the following changes occurred: Colonial Stores, In-
corporated, captured the 73 stores of Albers Super Markets, Incor-
porated, of Ohio and 14 units of Stop and Shop Enterprise of Indi-
ana. Food Fair Stores, Incorporated, after experiencing remarkable
growth in the postwar era, added 16 Carl's Markets, Incorporated,
of Florida and four stores of Budget Markets, Incorporated. Ameri-
can Stores Company purchased the 92-unit chain of the Market
Basket Corporation of New York. Grand Union Company acquired
31 Carrolls' Limited Stores and certain Food Fair Stores in Wash-
ington, D.C.; Shirley Food Stores and certain Stop and Shop outlets
in New Haven, Connecticut; six Food Center Supermarkets in New
York; and two Value Markets and three Tanner Stores in Miami.
Jewel Tea Company added 41 stores of Eisner Grocery Company
of Champaign, Illinois.
The greatest forager of the medium-sized chains was the National
Tea Company, which acquired C. F. Smith Stores Company, North-
west Piggly Wiggly Company, George T. Smith's Market Basket,
Incorporated, Dale Supermarkets, 28 Food Center Stores in St.
Louis, Missouri; 28 Capital Stores, Incorporated, of Baton Rouge,
Louisiana; Ashton's Supermarket of Gulfport, Mississippi; and H. A.
Smith Markets, Incorporated, and Montag's Supermarket Chain of
Memphis, Tennessee. The most recent additions of National Tea
Company include the Maker's Food Chain of Michigan and seven
stores in Peoria, Illinois, from Illinois Valley Stores; seven units of
Devans Food Stores, Mobile, Alabama; nine Logan's Supermarkets
of Nashville; and 85 Council Oak Stores in Minnesota and Iowa.
Other recent additions include stores in Colorado, Michigan, Iowa,
and Illinois.
In addition, National Tea Company may become part of a new
major international company in the industry. George Weston, Lim-
ited, a Canadian biscuit manufacturer, controls Loblaw Groceterias
Company, Limited, one of Canada's largest grocery chains. In turn,
Loblaw Groceterias' assets include 56 per cent of the stock of Lo-
Supermarkets Become Big Business— Integration 181
blaw, Incorporated, and 33 per cent interest of National Tea Com-
pany. Both of the last two are classed as medium-sized chains. The
George Weston group, which has been built in recent years, also
has cast covetous glances at certain Safeway Stores. On March 31,
1959, the National Tea Company was charged by the Federal Trade
Commission with illegally acquiring stores in violation of the Clay-
ton Act's antimerger section and with unfair competition and busi-
ness practices in violation of the Federal Trade Commission Act.
Two of the medium-sized group, Dixie Home Stores and Winn-
Lovett Company, merged into the Winn-Dixie Stores, Incorporated,
a chain of some 447 stores. Prior to the merger, Winn-Lovett Com-
pany had acquired eight Jitney Jungle Stores of Alabama and Edins
Food Stores of Columbia, South Carolina. In 1956, Winn-Dixie
acquired 24 stores in North Carolina from Ketner-Milner Stores,
Incorporated, and 42 stores of H. G. Hill Stores, Incorporated, in
the New Orleans area.
Perhaps the most revolutionary merger of the medium-sized
chains was the formation in 1955 of ACF-Wrigley Stores, Incorpo-
rated. In this, ACF-Brill Motors Company and the 92 Wrigley Stores
of Detroit, Michigan, were the principals. Also included in this and
subsequent development were the 20-odd Big Bear Markets of Mich-
igan, Incorporated, 33 Humpty Dumpty Stores of Oklahoma, 13
Foodtown Stores, Incorporated, and 10 Fred Rapp, Incorporated,
stores of St. Louis, Missouri. This new company of about 177 stores
is reported planning additional acquisitions and openings.
Mergers have taken place in the classification of chains with less
than $100 million yearly volume, but these have been of substanti-
ally less importance volumewise in the industry as shown by the
statistics in Table 9-6. Perhaps one of the most significant of these
was the growth of Lucky Stores, Incorporated, from a 40-odd unit
chain into a 96-unit operation as of December 31, 1956, through
merger of Cardinal Stores, Incorporated, Serv-U-Meat Markets, and
Dolly Madison International Foods, Limited. In this class, the trend
is toward larger operation by the individual chain.
182 Supermarketing
Underlying Forces Behind the Movement
While there are many evident causes for this merger movement,
the following are advanced as the major reasons for this growing
concentration in the food chain industry.
1. The food chains are the major factor volumewise in the super-
market industry, which in turn dominates retail food store distribu-
tion. The general supermarket movement has been characterized
by an aggressive attitude by management toward growth, The su-
permarket industry has been one to adapt operations to meet the
needs and requirements of the consumer. "Non progredi est re-
gredi" (not to go forward is to go backward) or expand or die is
the keynote.
2. Profits before taxes as a percentage of tangible net worth
among food chains in the post- World War II era have been excel-
lent. For example, Dixie Home Stores and Big Bear Markets of
Michigan, Incorporated, have earned in some years as much as 50
cents on every dollar of owner's equity. In 1956, Food Fair Stores
earned 39 per cent and Market Basket, Incorporated, earned 36 per
cent on tangible net worth. Reinvestment in merchandising activity
is necessary to continue this high level of earnings.
3. New locations constantly are being pioneered. However, as
these are harder to find, management has turned to acquisition of
existing locations. It is easier to estimate and evaluate the potential
of a going operation than a new location.
4. The problems are fewer in acquiring existing locations than
in pioneering new stores. There is no time delay in start-up expense,
no financing of real estate and building, and less waiting for the lo-
cation to pay off profitably.
5. The larger concerns are able to spread the risk of failure over
a wider geographical area by acquiring outlets in new regions. This,
plus the stability of the industry (food sales), has enabled many
chains to enter the capital markets to "trade on equity." The ability
to borrow more easily and cheaply because of size and diversified
locations has benefited the larger firms. The rates paid for capital
have been less substantial than the profits that accrued from the
i
Supermarkets Become Big Business— Integration 183
use of these funds. Many of the firms studied in the postwar period
have had consistently more creditors' funds than owners' funds in
the business.
6. The larger firms have more marketable securities to exchange
for the shares of the smaller companies than do those concerns under
$100 million annual volume. This has given the larger concerns an
advantage in acquisition through stock exchange.
7. A number of food chains were started in the 1930's by indi-
viduals as single-unit operations, many of which were supermarkets.
These ventures have grown into multi-unit operations. Management
now is nearing retirement and is selling out to larger operators.
8. Many of the local operators have found it difficult to secure
outside capital and have been forced to rely to a large extent on
^retained earnings for expansion. The present tax rate reduces the
amount available for reinvestment, especially since the cost o£ pio-
neering new locations has increased substantially. This has placed
the independent at some disadvantage.
9. The estate tax also has influenced the merger movement. The
small, family firms in which the owners have a large share of their
wealth in the supermarket operation have been facing the prospect
in recent years of paying the estate tax. The possibility that pay-
ment of this tax may jeopardize the financial stability of the firm
and injure the heirs of the owner are factors that contribute to the
mergers.12
10. Independents find it difficult to expand into shopping centers.
The big insurance companies that do the bulk of the financing of
the centers demand as tenants under long-term rental contracts the
big regional and national chain outlets. The independent, in most
instances, is prohibited by economic fact from expanding into shop-
ping centers. The centers are changing the retail pattern of the
United States.13
12 ibid.
13 Testimony of Earl W. Kintner, Chairman, Federal Trade Commission, be-
fore a Subcommittee of the Select Committee on Small Business, United States
Senate, Eighty-sixth Congress, First Session, July 2, 1959. These hearings are
published as Mergers and Unfair Competition in Food Marketing, Government
Printing Office, Washington, D.C., 1960.
184 Supermarketing
11. There are economies of large-scale operation in certain in-
stances. Better utilization of warehouses, transportation equipment,
and manufacturing facilities have been advanced as reasons for ac-
quisitions. One of the supermarket successes has been in spreading
fixed costs over a large volume. Large units can integrate vertically
more easily. Certain buying and selling advantages accrue to the
large-scale operator; for example, the Thursday newspaper adver-
tising cost can be spread over more stores.
Trends in Mergers and Conclusions
This trend toward concentration among the food chains is a mani-
festation of a general trend in the economy— the big absorbing the
small. The largest member of the food chain industry has had fre-
quent bouts with the Department of Justice as to the size and scope
of its operations. Safeway Stores, Incorporated, operating in 24
states and commanding from 12 to 13 per cent of the chain food
store volume, likewise has been aware of the A & P versus the gov-
ernment. But the framework of operation and the advantages of
integration and growth are such that the lesser lights in the industry
will continue to gain on the top few. In the not-too-far future the
data indicate definite trends toward fewer and larger food chains.
Not only will the medium-sized concern capture the small but they
will also join forces with other medium-sized chains. The expansion
to new regions, such as the move of Kroger Company to the South-
west, will be continued. In fact, large international chains such as
the aforementioned George Weston, Limited, organization, are more
than a remote possibility. The main limiting factor appears to be
fear of government interference.
As chains grow larger and outlets for investment of funds are
needed, more emphasis may be placed on vertical integration. There
seems to be a parallel between size of food chain and degree of
emphasis on manufacturing operations. If vertical integration is fol-
lowed, more products of the Ann Page or Jane Parker variety can
be expected, although some of the actual manufacturing may be
done by regular food manufacturers. This leads to what can be
Supermarkets Become Big Business— Integration 185
called "chain labels" as distinct from private labels or nationally
advertised brands. "Chain labels" supported by strong advertising
and promotion can make it more difficult for the national brands to
gain shelf space. Brand competition will become keener with more
emphasis placed on advertising and promotion.
Faced with large capital requirements and competition from large
chains with diversified locations, the individual entrepreneur will
find it more difficult to enter the food business successfully. There
is a trend toward fewer and larger food stores in the economy.
The death knell of the service and limited-function wholesaler
has been sounded for many years; yet, they continue to exist. How-
ever, increased concentration in the food chain industry, with em-
phasis on buying and shipping direct from the manufacturer to chain
stores or warehouses, could affect adversely wholesalers' operations.
As a corollary to the above, important contracts may tend to be
made to a great extent at chain branches or headquarters. This
would make the position of many manufacturers' salesmen come un-
der review in this battle for survival. Some salesmen possibly could
be eliminated, or their functions could be changed to those of set-
ting up displays and other merchandising activities, or both possi-
bilities could occur.
In the past 25 years, developments in food store retailing have
been almost revolutionary. How much further these changes will go
depends primarily on governmental policy in curbing mergers. The
economic forces in food chain distribution are marshaled in favor of
bigness.
VOLUNTARY CHAIN GROWTH
Faced with the integration threat of the food chains in the post-
war period, many independent supermarket operators have joined
the voluntary chain movement. Voluntary chains are of two types,
namely: (1) wholesale grocers sponsoring voluntary retail groups
and (2) retailer-owned food cooperatives jointly owning the whole-
sale activity.14 Both types have shown substantial growth in the post-
14 The activities of the voluntary chains are discussed in Chapter 5.
186 Supermarketing
war period, as shown by the statistics in Table 9-8. While the data
show wholesale sales of the two types of cooperatives, the statistics
can be adjusted to retail figures by applying an approximate 20 per
cent markup. Wholesale data are furnished inasmuch as this is one
of the most feasible methods of collecting statistics to assess the
importance of the numerous independent retail operators through-
out the country.
TABLE 9-8 *
Wholesale Sales of Certain Voluntary Food
Chain Groups in the United States for the
Years 1948, 1954, and 1958 (in millions).
Type 1948 1954 1958
Wholesale-sponsored f $746 $1,444 $2,096
Retailer-owned food
cooperatives ( 543 1,211 2,030
* Federal Trade Commission, Federal Trade Commission Economic Inquiry
Into Food Marketing — Interim Report, Government Printing Office, Washington,
D.C., June 30, 1959.
f Includes the data for 146 wholesale grocers sponsoring voluntary retail
groups for each of the years.
| Includes the data for 141 retailer-owned food cooperatives for each of the
years.
These voluntary groups not only have become powerful buying
forces, but in addition, they are growing more and more impor-
tant as manufacturers. In 1958 the voluntary chain wholesalers that
participated in the Federal Trade Commission study reported oper-
ating 57 manufacturing plants that shipped $65.7 million in prod-
ucts.15 The plants operated primarily in the coffee roasting, dairy
products, baking, and canning areas.
SUMMARY
In the postwar era, the supermarket industry literally came of age.
Volumewise, the supermarkets became the largest group of food retailers.
In turn, the independent supermarkets that started and dominated the
industry were surpassed by the chain supers, both as to number of stores
15 Federal Trade Commission, op. cit.
Supermarkets Become Big Business— Integration 187
and volume. The industry has become one of bigness — not only as to size
of stores — but as to concentration among its members. The industry has
followed a standard practice of closing small units and opening new and
large locations in order to maintain relative competitive position. Except
for the two largest concerns, A & P and Safeway Stores, the industry
members have been on a shopping spree of gobbling up going concerns.
As a result, the fast-moving, medium-sized chains have acquired a host
of new outlets through merger and acquisition. The smaller chains in turn
have been acquiring numerically the even smaller operators. The forces
within the industry are marshaled toward bigness, with the only major
deterrent being the action of the federal government through the Federal
Trade Commission and the Department of Justice. Legal action has been
taken by the government against certain of the major industry members
for both horizontal and vertical integration. More legal action against
the major concerns now active in mergers can be anticipated in the near
future.
This move toward bigness is a result of many factors. Basically, man-
agement in this industry has been characterized by an aggressive spirit.
The earnings of the industry have been excellent, and a source for re-
investment in merchandising activities is necessary to continue this high
level of earnings. New locations are more and more difficult to find,
and it is easier to estimate and evaluate the potential of a going operation
than a new location.
In addition, the larger firms have more marketable securities to ex-
change for the shares of the smaller companies. Next, management of
many supermarkets that were started in the 1930's is nearing retirement
and is selling out to the larger operators. Finally, there are economies of
large-scale operation in certain instances that benefit the large super-
market chains.
This trend toward concentration among the supermarket members is
a manifestation of a general trend in the economy — the big absorbing the
small. Faced with large capital requirements and competition from large
chains with diversified locations, the individual entrepreneur will find
it more difficult to enter the food business successfully. The trend toward
fewer and larger food stores in the economy will continue.
10
CHANGES IN THE
NUMBER OF FOOD STORES
AND THEIR SALES VOLUME
INTRODUCTION
The preceding chapter examined the movement of the large food
chains toward domination of the supermarket industry in the post-
war era. Integration policies and practices of the large food chains
were examined. The purpose of this and the following chapter is to
discern changes in the pattern of food store sales between 1929 and
1958. To do this, it is necessary to examine data at three points in
time-1929, 1954, and 1958.
The year 1929 was selected because (1) for all practical pur-
poses, supermarkets were nonexistent at the time, and (2) it was a
year for which the Bureau of Census published Retail Distribution
Statistics. The year 1954 was included because it was the closest
year to date for which Retail Trade Statistics were given by the
Bureau of the Census. The changes that are measured statistically
at these points in time are shifts in the absolute and relative posi-
tions. These include:
1. Number of different types of food stores
2. Dollar sales of different types of food stores
3. Sales of the major product lines transacted by different types
of food stores
The first two issues are examined in the remainder of this chapter.
188
Changes in Number of Food Stores and Sales Volume 189
Product-line sales by type of food store outlet are analyzed in Chap-
ter 11.
CHANGES IN THE NUMBER OF FOOD STORES
The era of the "roaring twenties" was also the heyday of specialty
food stores. This is evidenced by data in Table 10-1 which indicate
TABLE 10-1
Number of Food Stores in the United States by Type
of Store for the Years 1929, 1954, and 1958.
1929
1 954
1958
Type
stores *
stores f
stores \
Grocery stores (without meat)
191,876
000 §
72,300
Combination markets
115,549
279,440
188,700
Meat and seafood markets
49,865
27,354
22,500
Fruit and vegetable markets
22,904
13,136
12,000
Confectionery stores
63,265
20,507
20,000
Bakery product stores
12,013
19,034
18,500
Delicatessen stores
11,166
8,132
8,000
Other food stores
15,253
13,777
15,000
Country general store
104,089
17,701
16,000
Total
585,980
399,081
373,000
* U.S. Bureau of the Census, Retail Distribution Part I, Vol. 1, Government
Printing Office, Washington, D.C., 1933, p. 47.
f U.S. Bureau of the Census, Retail Trade, Summary Statistics, Vol 1, Gov-
ernment Printing Office, Washington, D.C., 1957, p. 2-3.
t Facts in Grocery Distribution (New York: Progressive Grocer, 1959), p.
F-5.
§ Grocery stores without meat were not classified separately in the 1954
census and are contained in the combination markets classification.
the large number of stores (62.8 per cent) handling specific food
lines. However, the trend toward the combination of at least the
grocery and meat departments was under way. In the year 1929,
115,549 grocery stores handled meat and were thus in the combina-
tion market class. These represented 19.8 per cent of all food stores.
The major industry class was the neighborhood grocery store with-
out meat, representing about one-third of all food stores.
While not classified as a food store by the Bureau of the Census,
190 Supermarketing
the country general store did approximately 60 per cent of its vol-
ume in food products in 1929. Therefore it is included in the study.
By 1958 the major shifts in the number of food stores can be
summed as follows:
1. The most startling change was the passing of the country gen-
eral store. The decline by more than 88,000 units from a total of
104,089 was a decrease of 85 per cent.
2. The next significant shift was the sharp increase in the number
of combination markets ( the classification for supermarkets ) . These
increased by 73,151 units to become the dominant member of the
food store group. Supermarkets, which numbered 20,413 in 1958,
accounted for 27 per cent of the increase in the combination market
class.
3. The group of grocery stores without meat lost its major rela-
tive and absolute status. However, an undisclosed number of this
class added meats and became combination markets. This change-
over was also true of the meat market, which added groceries and
joined the combination movement. The exact number of both types
that shifted to combination operation is not known. But grocery
stores without meat and meat markets as specialty stores decreased
numerically between 1929 and 1958 by 146,941 units; combination
markets increased numerically only 73,151 units in this 29-year
period, and a growing number of these were new supers under chain
ownership. Therefore a substantial number of limited-line stores
under individual ownership permanently closed their doors.
4. Of the specialty food group members, the produce stores, deli-
catessens, meat markets, and confectionery outlets suffered losses
in numerical position. Only the bakery product stores improved their
numerical status.
5. Supermarkets, classified under combination stores in Table
10-1, for all purposes were nonexistent in 1929. As of 1958 their total
was estimated at 20,413, a mere 5.5 per cent of all the food stores
and 10.8 per cent of all the combination markets. Numerically the
dominant class of food stores in 1958 comprised the nonsuper com-
bination markets with an estimated 168,287 units or about 45 per
Changes in Number of Food Stores and Sales Volume 191
cent of all food stores in the country as compared with the super-
markets, which represented only 5.5 per cent of all food stores.
However, a true appraisal of the supermarket movement is not ob-
tainable from an examination of the number of supermarkets alone.
Their basic operating practice of developing a large volume of sales
per store must be considered along with their relatively insignificant
but growing numerical status.
6. There had been a trend toward fewer small combination mar-
kets. This movement had been quite pronounced in the past decade.
The combination market class numerically declined from 223,662
units in 1948 to 188,700 outlets in 1958.1 The supermarket made
impressive numerical gains in this decade, as shown by the statistics
in Table 1-2. However, the superette, a combination market that
transacts a yearly volume of possibly several hundred thousand dol-
lars, had become an important factor in the food store group during
this period. Superettes, which numbered 59,700 units in 1958, had
been growing in numerical importance along with the supermarket
to the detriment of the small combination market with yearly sales
under $75,000.2
CHANGES IN THE SALES BY TYPE OF FOOD STORE
Total food store industry sales, including statistics for the country
general store, increased from $12,589 billion in 1929 to $50,263 bil-
lion in 1958, as shown by the statistics in Table 10-2. This gain of
400 per cent in food store sales included a rise in price plus an im-
provement in over-all tonnage. But all membership classes by type
of store did not experience the same relative growth. The statistics
on the distribution of sales by type of store, shown in Table 10-2,
indicate the following salient changes:
1. Grocery stores without meat commanded 28 per cent of all food
store sales in 1929. By 1948 this group had slipped to 13 per cent of
1 U.S. Bureau of the Census, Retail Trade-General Statistics, Part I, Vol. 1,
Government Printing Office, Washington, D.C., 1952, p. 104.
2 Facts in Grocery Distribution (New York: Progressive Grocer, 1959), p.
F-9.
192 Supermarketing
TABLE 10-2
Food Store Sales in the United States by
Type of Store for the Years
1929, 1954, and 1958.
1929 sales
1954 sales
1958 sales
Type
(in millions) *
(in millions) f
(in millions) X
Grocery store (without meat)
$ 3,449
$ 000 §
$ 000 §
Combination markets
3,904
34,421
44,547
Meat and seafood markets
1,337
2,128
Fruit and vegetable markets
308
485
Confectionery stores
572
568
Bakery product stores
201
862
Delicatessen stores
195
480
Country general store
1,622
707
Other food stores
1,001
818
5,716 f
Total
$12,589
$40,469
$50,263
* U.S. Bureau of the Census, Retail Trade-General Statistics, Part I, Vol. 1,
Government Printing Office, Washington, D.C., 1952, p. 104.
f U.S. Bureau of the Census, Statistical Abstract of the United States, Gov-
ernment Printing Office, Washington, D.C., 1959, p. 840.
t Ibid., p. 833.
§ Grocery stores without meat were not classified separately in the 1954
census or in the 1958 estimates. Statistics for this group are contained in com-
bination markets.
IT For 1958 the other food stores classification contains all food stores with the
exception of combination markets. The data were not reported separately and
are grouped as specialty food stores.
all food store sales, and the trend continued downward.3 By 1958
this class had only 72,300 stores, compared with 154,277 outlets in
1948, and the volume was considered under $4 billion. The Bureau
of the Census no longer considers it essential to report this dwindling
group.
2. Combination markets were last reported separately in 1948, at
which time they had captured almost 66 per cent of all food store
3 In 1948 there were 154,277 grocery stores without meat that transacted
$4,027 billion in sales. Combination markets of that year numbered 223,662
units and transacted sales of $20,743 billion. These data are from the U.S.
Bureau of the Census, Retail Trade-General Statistics, Part I, Vol. 1, Govern-
ment Printing Office, Washington, D.C., 1952, p. 104.
Changes in Number of Food Stores and Sales Volume 193
sales, compared with 31 per cent in 1929. Combination store sales
in 1958 were estimated to transact at least $40 billion of the total
grocery and combination classification volume of $44,547 billion or
over 80 per cent of all food store sales, as shown by the statistics in
Table 10-2.
3. The supermarket group is contained in the combination market
classification in Table 10-2. This division had sales of $28.7 billion
in 1958 and had become the major factor in both the combination
market class and the food store industry. From 1929 to 1958 the
supermarket classification raised its share of food store sales from
zero to 57.1 per cent. Not only had the supermarket made vast in-
roads in the volume of food store sales, but the superettes also had
captured $11.85 billion of the food store sales in 1958.4 The small
grocery and combination stores as a group in 1958 numbered 195,400
outlets and yet transacted a mere $3.75 billion in food store sales.5
The small combination markets ( nonsupermarket combination stores
with sales under $75,000 per year) suffered a severe loss in relative
industry position between 1929 and 1958.
4. Sales of food products by the country general store had fallen
to an insignificant amount of total food store sales.
5. Among the specialty food store group, the only one to show
significant progress and improve its relative industry position was
the bakery products group.
CONCLUSIONS ON CHANGES IN THE NUMBER OF
FOOD STORES AND THEIR SALES VOLUME
If the preceding analysis is viewed in its broadest aspects, three
major features stand out:
1. The passing of the country general store as a significant me-
dium for the sale of food products.
2. The attainment of major status by the combination market in
the food store industry coupled with a noticeable loss in relative
4 Facts in Grocery Distribution, op. cit.
5 Ibid.
194 Supermarketing
position by the single-line stores.6 (The supermarket was the major
exponent of multiline operation in the food group. )
3. The successful combating of the trend toward multiline opera-
tion by the bakery shops.
These three aspects are reviewed in the following section to estab-
lish the major underlying forces that brought about these changes
and to discern what role, if any, the supermarket played.
Passing of the Country General Store
The country general store, which at one time held an important
place in the retailing pattern, dwindled to a position of insignifi-
cance. As late as 1929, 12.7 per cent of the food store sales were
transacted by this type of outlet; by 1954 sales were reduced to 1.7
per cent. This decline can be traced to both internal and external
factors. A list of the important internal failings includes: 7
1. Lack of capacity to buy in quantity
2. Small size of stores preventing specialization
3. Unskilled buying because of wide lines handled
4. Incomplete assortments
5. Inadequate records
Externally, the most important factors have been: 8
1. The farm-to-city movement
2. Improved roads and transportation
3. Increased importance of fashion merchandise
4. Development of rural mail delivery
Most of the internal factors could be lumped under one heading-
poor management. To this can be added changes in the buying
6 A single- or limited-line store is used here to indicate a food store in which
the sale of one type of merchandise, such as bakery products, groceries, or con-
fections, predominates. These are distinguished from the multiline outlets, ex-
emplified by the combination market which handles groceries and meat plus
any number of other lines. The supermarket is perhaps the best example of an
exponent of multiline operation among the food store group.
7 C. F. Phillips and D. J. Duncan, Marketing Principles and Methods ( Chi-
cago: Richard D. Irwin, 1956), p. 159.
8 Ibid., p. 177.
Changes in Number of Food Stores and Sales Volume 195
habits of the rural people plus their ability to travel great distances
to shop. Supermarkets have attracted farm and rural patronage.9
The ability of the super to operate as a low-cost marketer of food
and its ability to merchandise farm produce have earned the respect
and support of many of the farm folks.10 Although the number of
supers in rural areas is small, the trend has been toward locating in
these rural and small communities. The location of many new supers
on or adjacent to arterial highways has attracted rural trade. These
data indicate that the supermarket development added to the de-
cline of the general store; but in view of other factors, the specific
influence of the supermarket cannot be assessed.
Rise of the Combination Market and the
Decline of the Limited-Line Food Store
In 1931 the trend toward competition among different types of
retailers in selling the same commodity was indicated. Malcolm P.
McNair wrote:
It is an era of scrambled merchandising. Grocery stores sell cigarettes;
drug stores sell grocery products; and tobacco stores sell razor blades.
Grocery stores are on the way to becoming food department stores.11
The theory that limited-line stores move toward multiline opera-
tion and then back again in a cyclical nature has been advanced.12
However, after World War I, there was a pronounced trend of gro-
cery stores to widen their lines; this continued on a larger scale, with
impetus given by the success of the supermarket.13
9 B. A. Durrant, "Why Go After the Small Town Market," Chain Store Age,
Grocery Executive Edition, April, 1945, p. 171.
i° L. L. Clovis, "What the Farmer Expects from the Operator," Super Market
Merchandising, XII, no. 11, November, 1947, p. 81.
ii Malcolm P. McNair, "Trends in Large-Scale Retailing," Harvard Business
Review, X, no. 1, Fall, 1932, p. 31.
i2 Paul D. Converse and Harvey W. Huegy, The Elements of Marketing
(5th ed.; New York: Prentice-Hall, Inc., 1952), p. 399.
is "50 Years— 1888 to 1938," Printers Ink, Vol. 184, no. 4, July 28, 1938, p.
309.
196 Supermarketing
Specifically, the causes of intertype competition among retailers
were: 14
1. The large pool of overhead or common costs
2. Interrelated demand among several products
3. Changing consumer shopping habits
4. Development of new products; improvement and standardiza-
tion of old ones
The economic consequences of such a movement had important
effects on the structure of retail trade and on the economy at large.
Ostensibly, improvement was realized in the market position of the
multiline distributor at the expense of the limited-line dealer. There
were possible shifts in the relative importance of price competition
and nonprice competition in various lines. There was encouragement
of further legal restrictions.15
This pattern of scrambled merchandising is exemplified by the
record of the food store industry. The 1920's were largely an era of
specialty stores that handled limited-line merchandise. However, the
trend toward multiline operation had started with the growth of the
combination market. By 1958 the combination market had gained
major status in the food store industry— both numerically and as to
volume— at the expense of all limited-line stores except bake shops.
The movement was given impetus by conversion to combination
markets of many limited-line outlets. The combination market move-
ment was one manner in which the small merchant could attempt to
combat the spectre of the supermarket.
The reasons for this were two: (1) The small combination mart
generally was able to reduce substantially the costs of products pur-
chased.16 (2) The small combination market alert to new trends also
could reduce operating expenses. The nonsuper combination market
was able to reduce purchase costs largely through the media of buy-
ing associations or cooperatives. Many wholesalers sponsored dealer
14 Richard N. Alt, "Competition Among Types of Retailers in Selling the
Same Commodity," Journal of Marketing, XIV, no. 3, January, 1948, p. 442.
15 Ibid., p. 446.
16 Robert Mueller, "Detroit Dealers Thrive on Modern Plan," Progressive
Grocer, XXIX, no. 2, February, 1950, p. 40.
Changes in Number of Food Stores and Sales Volume 197
plans.17 The methods varied, but usually they enabled the small mer-
chant to purchase grocery products at a small percentage above the
cost to the buying association plus a percentage for cartage to the
store.
The reduction in the operating expenses for the small combination
market enabled many of them to compete with the supers insofar as
expense as a percentage of sales is considered. Lower operating ex-
penses were effected through adoption of self-service, displays, and
reduced credit and delivery.18 The owner of the small combination
market of 1958 generally was considered to have more knowledge
of how to run a store than did his counterpart in the 1920's. He was
able to observe the supermarket techniques, and buying associations
furnished valuable service on operations to its members.
Despite the fact that the nonsuper combination markets were able
to lower both the cost of goods purchased and expenses, they ap-
peared at a disadvantage in the intraclass struggle with the super-
market. The latter opponent generally had facilities and resources
to adopt operating practices more in line with the changing desires
of the shoppers. The super was able to exploit more fully than the
nonsuper combination market the customer attractions of one-stop
shopping, new suburban locations, diversified lines of merchandise,
and other buying preferences.
Position of the Bakery Shops
The bakery products outlets successfully challenged the trend to-
ward scrambled merchandise and the desire for one-stop shopping.
The bakery stores were at the same time the beneficiary and the
victim of cross-currents in the economy. On the one hand, people
reduced their per capita consumption of bakery products in favor
of other types of food.19 On the other, the population grew numeri-
" R. D. Tousley, "Reducing Distribution Costs in the Grocery Field," Journal
of Marketing, XII, no. 4, April, 1948, p. 40.
18 Godfrey Lebhar, "Self-Service Marches On," Chain Store Age, Grocery Ex-
ecutive Edition, September, 1952, p. 67.
19 Charles Slater, "Statistical History of the Baking Industry," Baking Indus-
try, Vol. 97, no. 1219, April 12, 1952, p. 264.
198 Supermarketing
cally. In addition, a decided change in the past twenty years re-
flected the consumer's demand for convenience in the preparation
of meals; this brought about a decided shift to store-bought bakery
products.20 Yet, above all, consumers demanded freshness in their
bakery products; and freshness was associated with purchase near
the point of manufacture— the bake shop. This single-line type of
food store actually improved its industry position in regard to sales.
However, this group is not removed from supermarket competition
inasmuch as many members of the latter have attained sufficient
size to open their own bake shops and compete on both a price and
quality basis.
SUMMARY
In 1929 supermarkets were for practical purposes nonexistent. By 1958
this member of the food store industry claimed only 5 per cent of all food
stores but 57.1 per cent of all food store sales. The supermarket became
a highly successful exponent of scrambled merchandising to the detriment
of the limited-line retail food merchant. The only limited-line store to
improve its relative industry position in this 29-year period was the bakery
products store. While the latter was subject to cross-currents in the econ-
omy, these stores succeeded in satisfying consumer demand by emphasiz-
ing freshness of their products as well as offering convenience in the
serving of meals. The small combination market has followed the super-
market's technique of multiline operation, but as a class it has not been
able to withstand the competition offered by the supermarket industry,
which has more resources at its command.
20 Bid., p. 47.
11
CHANGES IN THE SALES
OF MAJOR PRODUCT
LINES BY TYPES OF
FOOD STORE OUTLETS
INTRODUCTION
This chapter continues the analysis of changes in the food store
sales pattern between 1929 and 1958. In the preceding chapter, sig-
nificant changes in number and sales of different types of food stores
were discerned. The purpose of this chapter is to examine shifts in
the sales of certain major product lines transacted by different types
of food stores.
Analysis is made at the same points in time-1929, 1954, and 1958
-and for the same reasons advanced in Chapter 10. The major prod-
uct classes selected for study include:
1. Meat, poultry, and seafood
2. Fresh fruit and vegetables or produce
3. Confections
4. Bakery products
5. Canned goods, grocery items
6. Nonfood lines
199
200 Supermarketing
SALES OF MAJOR PRODUCT CLASSES IN
SUPERMARKETS
The 1958 supermarket handled 5,600 separate items.1 These can be
grouped primarily by departments under eight major headings.
Three separate studies recently were completed which measure the
relative importance of various product classes; these findings, ex-
pressed as a percentage of sales, are shown in Table 11-1. Individual
TABLE 11-1
Results of Three Recent Studies on the Percentage of Sales
of Major Product Classes Transacted by Supermarkets.
Food Town * Super Valu f Food chain \
Product class study, % study, % survey, %
Meats
28.11
22.42
25.10
Dairy products
8.61
11.51
10.30
Bakery products
2.67
5.76
4.30
Frozen foods
4.14
4.78
4.50
Confections
1.48
1.85
1.60
Produce
12.76
8.79
9.90
Grocery items
38.01
37.14
36.10
Nonfoods
4.22
7.75
8.20
100.00
100.00
100.00
* "The Food Town Study," Progressive Grocer, XXXV, no. 1, January, 1955,
p. 49.
f "How an Average Customer Spends Her Super Market Dollars — Super Valu
Markets," Facts in Grocery Distribution (New York: Progressive Grocer, 1959),
p. F-20.
| "What Do Food Chain Stores Sell," Chain Store Age, Grocer Executive
Edition, July, 1959, p. 47.
markets may have product statistics that vary from these data as a
result of size, finances, facilities, location, competitive factors, and
policy. But approximately 25 per cent of a supermarket's sales is in
meat, 10 per cent each in produce and dairy, 4 to 5 per cent in frozen
1 Facts in Grocery Distribution (New York: Progressive Grocer, 1959), p.
F-3.
Changes in Sales of Major Product Lines 201
foods, about 4 to 5 per cent in bakery products ( exclusive of pack-
aged cookies and crackers), and from 4 to 9 per cent in nonfood
lines. Confections, which average between 1 and 2 per cent of sales,
normally are considered part of the grocery line, but this class is
recorded separately since the impact of the super on confectionery
stores is assessed later in this chapter.
A breakdown of sales of the multitude of grocery products is given
in Table 11-2. The gross margin percentage for these grocery items
TABLE 11-2 *
How an Average Customer Spends Her Supermarket
Dollars for Grocery Products and the Percentage
of Gross Margin on Sales of These Items.
% total
% gross margin
Product group
supermarket sales
of sales
Beverages
5.42
12.1
Household and laundry supplies
2.59
28.3
Vegetables, canned
2.48
21.4
Cookies and crackers
2.20
25.3
Paper products
2.11
23.4
Soaps and detergents
2.01
10.5
Fruit, canned
1.82
21.6
Baking needs, flour
1.45
16.5
Breakfast foods
1.44
18.1
Soups
1.41
15.0
Baking, batter mixes
1.36
17.5
Fish, canned
1.09
19.4
Jams, jellies, and spreads
1.04
23.6
Sugar
1.04
8.0
Snack and party foods
1.01
23.9
Baby foods
0.99
14.1
Juices, canned
0.86
19.4
Pet foods
0.70
20.2
Salad dressings, mayonnaise
0.68
15.5
Shortening
0.66
9.7
Condiments, sauces
0.56
18.4
Pickles, olives, relishes
0.55
26.7
202
Supermarketing
Table 11-2
(Continued)
Desserts
Prepared foods, canned
Salt, seasonings, spices
0.54
0.42
0.39
16.7
20.8
24.6
Milk, canned and dry
Macaroni products, dry-
Meat, canned
Fruits, dried
Vegetables, dried
0.38
0.36
0.31
0.30
0.25
13.5
18.8
21.0
22.1
25.4
Syrups and molasses
Chinese foods
Diet foods
Pet supplies
Misc. grocery items
0.23
0.16
0.15
0.02
0.16
17.9
24.3
27.0
29.8
25.9
Total grocery products
Total all others
37.14
62.86
18.2
100.00
* Facts in Grocery Distribution (New York: Progressive Grocer, 1959), d.
F-20.
also is included. Again, individual markets may have sales that vary
from these findings inasmuch as this industry is so diverse. In the
wide range of products handled by a super, the importance of bever-
ages, household and laundry supplies, paper products, and soaps and
detergents is apparent.
SALES OF MEAT PRODUCTS, POULTRY, AND
SEAFOOD BY TYPE OF FOOD STORE
(This category includes the sale of all fresh meat, poultry, fresh
fish, and other fresh seafoods, plus meat provisions such as cured
hams, bacon, and sausage. )
In 1929 the meat market, a limited line store, was the principal
outlet for meat and related products, as shown by the statistics in
Table 11-3. By 1954 total food store sales of meat in the United
States soared to more than $10 billion. The rise was due in part to
an increase in population and to a higher per capita consumption of
meat products-from 139 lb in 1929 to 164 lb of meat per inhabitant
Changes in Sales of Major Product Lines 203
TABLE 11-3
Estimated Meat, Poultry, and Seafood Sales by Major Type of
Food Store Outlet for the Years 1929 and 1954.
1929 1954
Sales * Sales \
Type of store (inbiUions) % total (in billions) % total
Meat markets $1,245 54.4 $ 2,128 19.9
N°maSCOmbiliati0n 1,045 45.6 4,547 1 42.6
sSL 0 0.0 3,995 1 37.5
Total $2,290 § 100.0 $10,670 § 100.0
* U.S. Bureau of the Census, Retail Distribution— Food Retailing, No. R-83,
Government Printing Office, Washington, D.C., 1934, p. 82
f U.S. Bureau of the Census, Retail Trade, No. R-2-2, Government Printing
Office, Washington, D.C., 1957, pp. 2-333.
1 Total grocery and combination market sales of meat products for 1954 were
estimated at $8,542 billion in What the Public Spends for Grocery Store Prod-
ucts (New York: Topics Publishing Co.). Supermarket sales for 1954 were esti-
mated at $15,980 billion in Table 1-2. On the assumption that 25 per cent ot a
supermarket's sales are in meat products, supermart sales of meat m 1954 were
estimated at $3,995 billion. Nonsuper combination market sales ot meat are the
difference between total grocery and combination market sales of meat and the
meat sales of supermarkets. ,
§ These totals do not include the sale of meat products in other food stores
such as country general stores and delicatessens. Sales through these channels
are considered relatively insignificant.
in 1954.2 In addition, the wholesale price index for meat products
(1947 to 1949 equals 100) rose from 48.1 in 1929 to 91.5 in 1954.3
Among the stores, the nonsuper combination market became the
major retailer of meat, followed closely by the supermarket, which
made substantial progress during this period, rising from negligible
sales of meat in 1929 to 37.5 per cent in 1954.
2 Data on meat consumption are found in Table 3-2.
3 Changes in the wholesale price of meat are considered generally to indicate
changes in the same direction in the retail price of meat. Statistics are from the
U.S. Department of Commerce, reported in "Meat and Dairy Products Stand-
ard and Poor's Industrial Surveys, Section 3, October, 1959, p. 4. This same
source reported that consumption of meat per capita rose 3.7 per cent between
1954 and 1958 and that the wholesale price index for meat products rose 18
per cent, or from 91.5 to 107.9, during this same four-year interval.
204 Supermarketing
In the years 1954 to 1958, further shifts in the pattern of meat sales
resulted, to the detriment of the limited-line stores and the smaller
combination markets. Statistics of the approximate 1958 sale of meat
products by major food stores were: 4
Meat markets $2,128 billion
Nonsuper combination markets $4,917 billion
Supermarkets $7,175 billion
The supermarket became the dominant factor in the sale of meat
products, grossing more than 50 per cent of the volume. Small meat
markets and combination markets seemed destined to becoming the
new "Vanishing American."
SALES OF FRESH FRUIT AND VEGETABLES
BY TYPE OF FOOD STORE
(This category includes all items classed by the Census as fresh
fruits and vegetables. It does not contain frozen or canned produce. )
For the year 1929 the "big three" in the sale of fresh fruit and
vegetables among the major food stores, as indicated in Table 11-4,
were: grocery stores without meat (claiming 32.5 per cent of total
U.S. fresh fruit and vegetable sales), nonsuper combination markets
(34.8 per cent), and fruit and vegetable stores (22 per cent). The
country general store also was significant, with about 11 per cent
of the produce sales by major food outlets for fruits and vegetables.
In the 25 year interval, produce sales among the food stores in-
creased to over $4 billion. The price level rose; the population in-
4 The 1954 meat market had average sales of $77,700 per outlet. In 1958 this
same market would have its sales raised to $94,600 as a result of a 3.7 per cent
increase in the per capita consumption of meat and an 18 per cent rise in the
price index of meat products. However, by 1958 there was a decrease in the
number of units to 22,500 which, when multiplied by the new average sales per
store, gave the $2,128 billion estimate for meat markets.
Total grocery and combination market sales of meat products in 1958 were
estimated by the Topics Publishing Company in its yearly study at $12,092 bil-
lion. Supermarket sales in 1958 were $28.7 billion, of which 25 per cent were
estimated to be in meat products. Thus supermarket sales of meat products were
estimated at $7,175 billion. Nonsuper combination market sales of meat prod-
ucts is the difference between total grocery and combination market sales of
meat and supermarket sales of meat.
Changes in Sales of Major Product Lines 205
TABLE 11-4
Estimated Fresh Fruit and Vegetable Sales by Major Type of
Food Store Outlet for the Years 1929 and 1954.
1929
1954
Sales a
Sales
Type of store
(in millions)
% total
(in millions)
% total
Fruit and vegetable
$ 285
22.0
$ 485 6
10.8
Grocery stores without meat
421
32.5
000 o
—
Nonsuper combination
markets
451
34.8
2,416 <*
53.7
Supermarkets
0
0
1,598 *
35.5
Country general store
139
10.7
100.0
e
—
Total
$1,296 /
$4,499 /
100.0
<* U.S. Bureau of the Census, Retail Distribution— F ood Retailing, No. R-83,
Government Printing Office, Washington, D.C., 1934, p. 82.
& U.S. Bureau of the Census, Retail Trade, No. R-2-2, Government Printing
Office, Washington, D.C., 1957, pp. 2-333.
0 This class has become relatively insignificant, and the data are included un-
der nonsuper combination markets by the Bureau of the Census.
d Total grocery and combination market sales of produce for 1954 were esti-
mated at $4,014 billion in What the Public Spends for Grocery Store Products
(New York: Topics Publishing Co.). Supermarket sales for 1954 were estimated
at $15,980 billion in Table 1-2. On the assumption that 10 per cent of a super-
market's sales are in produce, supermarket sales of fruit and vegetables in 1954
were estimated at $1,598 billion. Nonsuper combination market and grocery
store sales of produce are the difference between total grocery and combination
market sales of produce and the produce sales of supermarkets.
e This type of outlet became relatively insignificant in the sale of produce by
1954, with sales estimated well below $100 million.
/ These totals do not include the sale of fresh fruits and vegetables in other
food stores such as delicatessens. Sales through these other channels are con-
sidered relatively insignificant.
creased; but most significantly, changes took place in the dietary
habits. There was a shift from consumption of bulky, lower-cost
produce of the potato type to greater consumption of the higher
cost leafy green vegetables and citrus fruits.
The 1954 sales pattern of produce differed substantially from that
of 1929. The country general store became almost extinct. Grocery
stores without meat had lower fresh fruit and vegetable sales than
206 Supermarketing
those of 1929 and had become insignificant in this area.5 Both non-
super combination markets and supermarts gained substantially in
absolute and relative positions in the sale of produce during this
25-year era.
In the years 1954 to 1958, further shifts in the pattern of produce
sales resulted, to the detriment of the limited-line stores and the
smaller combination markets. Statistics on the approximate 1958 sale
of produce by the three major food stores were: 6
Fruit and vegetable stores $ 510 million
Grocery stores and nonsuper combination
markets $2,020 million
Supermarkets $2,870 million
The supermarket has become the dominant factor in the sale of fresh
fruit and vegetables with more than 50 per cent of the volume. Small
fruit and vegetable markets, grocery stores without meat, and small
combination markets are suffering substantially from the stepped-up
activities of the supermarket in the merchandising of produce in the
past few years.
5 In 1948 there were 154,277 grocery stores without meat that transacted
$346 million in sales of produce. These data are from the U.S. Bureau of the
Census, Retail Trade — General Statistics, Part I, Vol. 1, Government Printing
Office, Washington, D.C., 1952, p. 104. By 1954 the number of grocery stores
without meat dwindled to an estimated 119,000 units, according to Progressive
Grocer.
6 The 1954 fresh fruit and vegetable market had an average sales volume of
$37,000. In 1958 this same market would have its sales raised to $42,500 as a
result of a 15 per cent increase in the value of produce consumed at retail prices
during this four-year interval, as reported by Topics Publishing Company in its
annual reports on What the Public Spends for Grocery Store Products. However,
by 1958 there was a decrease in the number of units to 12,000 which, when
multiplied by the new average sales per store, gave the $510 million estimate
for fruit and vegetable markets.
Total grocery and combination market sales of produce in 1958 were esti-
mated by the Topics Publishing Company in its yearly study at $4,890 million.
Supermarket sales in 1958 were $28.7 billion, of which 10 per cent were esti-
mated to be in produce. Thus supermarket sales of fresh fruits and vegetables
were estimated at $2,870 million. Nonsuper combination market and grocery
store sales of produce are the difference between total grocery and combination
market sales of produce and supermarket sales of fresh fruits and vegetables.
Changes in Sales of Major Product Lines 207
SALES OF CONFECTIONERY PRODUCTS
BY TYPE OF FOOD STORE
(Included in the category of confectionery products are bar candy,
gum, packaged confections, bulk candy, candy specialties, and
nuts.)
Although candy and confections can be bought in many types of
retail establishments, the custom of the 1920's was to buy them
largely in the little neighborhood candy store. In 1929 confectionery
stores transacted 67 per cent of all confectionery sales in the food
store group and 45 per cent of the total $512 million sales retailed
by both food and nonfood outlets.7 The nonfood trio of restaurants,
drugstores, and variety shops also was significant in the retailing of
confections.
But from 1929 to 1954 many changes in the marketing of confec-
tions resulted in taking more and more of the candy sales away from
the specialty confectionery store. The confectionery group suffered
a 68 per cent reduction in the number of outlets in 1954, compared
with the number in 1929.8 Dietary changes over the 25-year interim
influenced the purchase of confectionery products; per capita con-
sumption increased only from 15.7 to 16.1 lb between 1929 and
1954.9 Retail dollar sales rose with the growth of population and
with an increase in the average price of confections from 20.5 cents
to 37.5 cents per pound during this same interval.10 There was, how-
ever, an important change in the type of confections produced,
namely, a shift to the branded, prepackaged candy bar. These nickel
and dime bars together with gum and related items were regarded
as convenience goods and were given wide distribution in a variety
of new outlets. Vending machines became large sellers of confec-
tions. Theaters discovered additional revenue from the sale of con-
7 U.S. Bureau of the Census, Retail Distribution — Food Retailing, No. R-83,
Government Printing Office, Washington, D.C., 1934, pp. 82-86.
8 See Table 10-1.
9 U.S. Department of Commerce, Confectionery Sales and Distribution, Gov-
ernment Printing Office, Washington, D.C., 1957, p. 49.
™Ibid.
208 Supermarketing
fections. The small candy store next to the theater became a rare
phenomenon.
By 1954 three new outlets for confections, namely, vending ma-
chines, theaters, and supermarkets, transacted a total volume larger
than the confectionery store, as shown by the data in Table 11-5.
Sales of Confections by Certain Major
Retail
Outlets for the Years 1929 and 1954.
1929*
1954
Outlet
(in millions)
(in millions)
Confectionery stores
$230
$568 f
Grocery stores and nonsuper
combination markets
87
177 t
Supermarkets
_
240|
Vending machines
—
165 §
Theaters
—
160 f
* U.S. Bureau of the Census, Retail Distribution — Food Retailing, No. R-83,
Government Printing Office, Washington, D.C., 1934, pp. 82-86.
f U.S. Bureau of the Census, Retail Trade, No. R-2-2, Government Printing
Office, Washington, D.C., 1957, pp. 2-333.
t 1954 supermarket sales were $15,980 billion, as shown by data in Table 1-2.
On the assumption that 1.5 per cent of a super's sales are in confections, the
1954 figure for supermarket sales is $240 million. Total grocery and combina-
tion market sales were $417 in 1954, according to the Topics Publishing Com-
pany. Therefore grocery store and nonsuper combination market sales are $417
million less $240 million supermarket sales, or $177 million.
§ U.S. Bureau of the Census, Retail Trade Summary Statistics, Government
Printing Office, Washington, D.C., 1957, pp. 1-6.
ft U.S. Bureau of the Census, Retail Trade-Selected Service Trades, Govern-
ment Printing Office, Washington, D.C., 1957, p. 16.
Since 1954, both supermarkets and vending machines have increased
their relative market shares, as have the theaters, which have been
aided by the expansion to outdoor movies; yet, the confectionery
store group decreased numerically by more than 500 units according
to estimates by Progressive Grocer. Supermarkets merchandise can-
dies at the check-out counter where they utilize little display space
and are ideal as an impulse purchase; supers sell candies in volume
at a narrow gross margin and on a low price basis. If a statistic of
Changes in Sales of Major Product Lines 209
1.5 per cent is used to represent candy sales in a supermarket as a
percentage of total super volume, the 1958 supermarket industry
sold over $400 million in confections and is closing in rapidly on the
confectionery store.
SALES OF BAKERY PRODUCTS BY
TYPE OF FOOD STORE
(This category of bakery products includes bread, bread products,
pastries, doughnuts, and related items. It does not contain crackers,
packaged cookies, and pretzels. )
The principal outlet for the $614 million food store volume of
bakery products in 1929 was the neighborhood bake shop (with
31.4 per cent of U.S. sales of baked goods), followed closely by the
combination markets (30.7 per cent) and grocery stores without
meat (26.2 per cent). These statistics are found in Table 11-6. The
figures do not separately list house-to-house sales of bakery prod-
ucts; these are estimated to have been negligible during this period
(well under 5 per cent of the total bakery product sales in food
stores ) although their importance to the industry in recent years has
increased.11
During the interval between 1929 and the 1950's, there was a de-
cided shift from baking at home to the purchase of store products.12
This was attributed to women's demand for greater convenience in
the preparation and serving of food. This change in buying habits,
the population increase, and the rise in the price level of bakery
products more than compensated for the decrease in per capita con-
sumption of bakery goods.13 Major food store sales of bakery prod-
ucts, reported in Table 11-7, increased substantially in this period.
However, the bake shops were able to prosper and had sales rocket-
11 This estimate was made in an interview on March 1, 1954, by Charles
Slater, Research Economist, Bakery Industry Study conducted at Northwestern
University.
12 Charles Slater, "Statistical History of the Baking Industry," Baking Indus-
try, Vol. 97, no. 1219, April 12, 1952, p. 266.
is Ibid.
210 Supermarketing
TABLE 11-6
Estimated Bakery Product Sales by Major Type of
Food Store Outlet for the Years 1929 and 1954.
1929
1954
Sales a
Sales
Type of store
(in millions)
% total
(in millions)
% total
Bakery products
$170
31.4
$ 862 &
29.6
Grocery without meat
142
26.2
000 e
Nonsuper combination
markets
166
30.7
1,343 *
45.9
Supermarkets
0
0
719 <*
24.5
Country general store
63
11.7
100.0
000^
—
$541/
$2,924 /
100.0
a U.S. Bureau of the Census, Retail Distribution — Food Retailing, No. R-83,
Government Printing Office, Washington, D.C., 1934, p. 86.
& U.S. Bureau of the Census, Retail Trade, No. R-2-2, Government Printing
Office, Washington, D.C., 1957, pp. 2-333.
°This class has become relatively insignificant, and therefore the data are
included under nonsuper combination markets by the Bureau of the Census.
d Total grocery and combination markets sales of bakery products for 1954
were estimated at $2,062 billion in What the Public Spends for Grocery Store
Products (New York: Topics Publishing Co.). Supermarket sales for 1954 were
estimated at $15,980 billion in Table 1-2. On the assumption that 4.5 per cent
of a supermarket's sales are in bakery goods, supermarket sales of bakery items
in 1954 were estimated at $719 million. Nonsuper combination market and
grocery store sales of bakery products are the difference between total grocery
and combination market sales of baked goods and the bakery sales of super-
markets.
e This type of outlet became relatively insignificant in the sale of bakery items
by 1954 with sales estimated well below $100 million.
/ These totals do not include the sale of bakery products in other food stores
such as delicatessens and home delivery. Sales through these other channels are
considered relatively small.
ing to $862 million. The supermarket by 1954 also became a major
factor in this field by capturing 26.5 per cent of the volume for
baked goods. Country stores, grocery stores without meat, and the
small combination markets appear to have suffered substantially
because of the supermarket.
In the years 1954 to 1958, further shifts in the pattern of sales for
Changes in Sales of Major Product Lines 211
bakery products resulted, to the detriment of the smaller combina-
tion markets and even to some extent in the relative position of the
limited-line bake shops. Statistics on the approximate 1958 sale of
bakery goods by the three major food stores were: 14
Bakery shops $ 981 million
Grocery stores and nonsuper combination
markets $1,120 million
Supermarkets $1,292 million
The supermarket became the dominant factor in the sale of baked
goods in 1958 with approximately 38 per cent of the volume trans-
acted by the major outlets. Supermarkets intensified activities in this
area inasmuch as a growing number of chains reached sufficient size
to manufacture and market their own packaged bakery products.
These items were sold under the chain brand as a good value in
terms of price, size, and quality, and thus attracted shoppers. This
policy of merchandising by stressing good value of the frequently
purchased baked goods has overcome to some extent the desire on
the part of the consumer to purchase oven-fresh products at or near
the point of manufacture. Thus baked goods form an integral part
of marketing strategy by a super and offer an important source
of profit to the integrated firm of proper size. Supermarket activities
in this area also have intensified competition with the large bakery
manufacturers who market packaged goods regionally or nationally.
14 The 1954 bake shop had an average sales volume of $45,000. In 1958 this
same market would have its sales raised to $53,000 by an 18 per cent increase
in the value of bakery products consumed at retail prices during this four year
interval as reported by Topics Publishing Company in its annual reports on
What the Public Spends for Grocery Store Products. However, by 1958 there
was a decrease in the number of units to 18,500 which, when multiplied by the
new average sales per store, gave the $981 million estimate for bakery product
stores.
Total grocery and combination market sales of bakery products in 1958 were
estimated by the Topic Publishing Company in its yearly study at $2,412 billion.
Supermarket sales in 1958 were $28.7 billion, of which 4.5 per cent were esti-
mated to be in baked goods. Thus supermarket sales of bakery products were
estimated at $1,292 billion. Nonsuper combination market and grocery store
sales of baked goods are the difference between total grocery and combination
market sales of bakery products and supermarket sales of baked goods.
212 Supermarketing
SALES OF CANNED GOODS AND GROCERY ITEMS
BY GROCERY STORES AND COMBINATION MARKETS
The term grocery items has been used as a catch-all classification.
Its definition has been complicated and subject to change by the
wide assortment of food and nonfood lines added by the grocery
stores and combination markets. The items listed in this classifica-
tion are found in Table 11-2.
A variety of retail stores today handles canned goods and grocery
items. However, only the major outlets for the years 1929 and 1958
are contained in the data of Table 11-7. In 1929 the grocery stores
without meat were the major retailers of canned goods and grocery
items. From then until 1958, the grocery store without meat suffered
TABLE 11-7
Sales of Grocery Product Items by Major Food
Store Outlets for the Years 1929 and 1958.
1929
1958
Type of outlet
Sales *
(in billions)
% total
Sales f
(in billions)
% total
Grocery stores without
meat
Nonsuper combination
markets
Supermarkets
$2,853
2.347
0
54.9
45.1
0
100.0
000 t
$ 6.531
10.659
37.9
62.1
Total
$5,200
$17,190
100.0
* U.S. Bureau of the Census, Retail Distribution — Food Retailing, No. R-83,
Government Printing Office, Washington, D.C., p. 82.
f Total grocery and combination market sales of grocery items for 1958 were
estimated at $17,190 billion in What the Public Spends for Grocery Store Prod-
ucts (New York: Topics Publishing Co.). Supermarket sales for 1958 were esti-
mated at $28.7 billion in Table 1-2. From Table 11-2, grocery items are repre-
sented as 37.14 per cent of total supermarket sales. This percentage applied to
total supermarket sales furnished the $10,659 billion estimate for supermarkets.
Nonsuper combination market and grocery store sales of grocery items are the
difference between total sales of $17,190 billion and supermarket sales of
$10,659 billion.
t This class has become relatively insignificant as to volume, and the data are
included under nonsuper combination markets by the Bureau of the Census.
hanges in Sales of Major Product Lines 213
a severe loss, in relative numbers and volume, to both the nonsuper
combination market and the supermarket. Again, the shift in buy-
ing habits, price competition from more efficient marketers of food,
and the ability of the large multiline outlet to spread overhead costs
over a wider line enabled supermarkets to attain major status in this
area.
SALES OF NONFOOD PRODUCTS IN GROCERY
STORES AND COMBINATION MARKETS
Nonfood products in grocery stores and combination markets do
not include food or food products for consumption. But the classi-
fication also excludes commonly carried items such as soap, cleanser,
household supplies, and paper products.
Growth of Nonfoods in Supers
Supermarkets were not the innovators of the sale of nonfood mer-
chandise among the food stores. In the 1920's some combination
markets handled nonfoods before the supers were in existence. H. C.
Bohack in 1929 operated a chain of 512 service grocery stores which
sold razor blades, drug items, and even automobile tires.15 However,
the tendency to scramble merchandise among the grocery stores
and combination markets in the 1920's was not common. In fact, the
1929 retail census did not have a separate category for nonfoods.
The early supermarkets concentrated on merchandising food prod-
ucts. During World War II, supers added nonfoods in order to sup-
plement their reduced lines of food items. In 1949 nonfood items
continued to be no novelty to supermarkets, but health and beauty
aids were the only major items universally stocked.16 Since then,
sales of nonfoods have increased steadily in supermarkets through
broadening the product fine until they have currently reached about
5 per cent of total sales.17 The middle half of the companies report-
is "Diversified Lines Give Bohack Chain $60,000 Yearly Unit Sales," Sales
Management, XXIX, no. 10, March 8, 1930, p. 441.
16 Curt Kornblau, Facts and Figures About Non-Foods in Super Markets
(Chicago: Super Market Institute, 1959), p. 1.
17 Ibid., p. 4.
214 Supermarketing
ing volume statistics to the Super Market Institute in 1958 achieved
nonfood sales between 3 and 8 per cent of their total sales. While
there is no clear-cut pattern in the proportion of nonfood sales to
total sales according to volume groups, the largest companies with
sales of more than $50 million average the highest nonfood sales;
these were reported at 6.3 per cent of total volume. One of the major
exponents of nonfoods among the giants is Grand Union Company
which in recent years has opened a series of combined supermarkets
and junior department stores under the same roof.
The two principal nonfood lines generally carried by supermar-
kets, however, are health and beauty aids and housewares. Statistics
on the major nonfood lines carried by supermarkets in 1958 are
shown in Table 11-8 along with the relative percentage of supers
carrying these products. In addition, the major source of supply for
each of the 21 classifications is listed. The method of procurement
differs widely for the various kinds of products.
Much diversity exists among individual operators as to the extent
of nonfood lines carried. In order to conform with supermarket op-
erating techniques, normally merchandise must: 18
1. Have rapid turnover.
2. Require little space.
3. Need no technical selling or readily lend itself to self-serv-
ice.
4. Have no high-styling of goods.
5. Lend itself to simplified purchasing and reordering, since the
supermarket operator is not normally an expert in the wide line of
nonfoods.
For the smaller concerns, the rack jobber has simplified the prob-
lem of merchandising items that do not conform strictly to the above
prerequisites. Larger companies are becoming strong advocates of
separate nonfood departments. Approximately 27 per cent of all
supermarkets have a separate department with at least one full-time
employee in charge; the majority of supers with separate depart-
18 Milton Alexander, "Where We Stand in Non-Food Merchandising," Pro-
gressive Grocer, XXXI, no. 10, October, 1952, p. 197.
K
V Changes in Sales of Major Product Lines
215
TABLE 11-8*
Estimated Percentages of Supermarkets That Handle Nonfood Lines
Together with Major Source of Supply for the Year 1958.
% super
markets
handling
Typical
number
of items
% Major source of supply
Rack
jobber
Whole-
saler
Manu-
facturer
Health and beauty
aids 98
Housewares 87
Women's hosiery 81
Stationery 74
Children's books 73
Magazines (general
line) 71
Glassware 69
Baby needs 68
Toys 66
Men's socks 64
Pet supplies 63
Phonograph records 62
Hardware 58
Garden supplies 58
Children's socks 55
Underwear 47
Photographic
supplies 37
Greeting cards 35
Notions and
sundries 33
Other soft goods 33
Electrical appliances 11
* Curt Kornblau, Facts and Figures About Non-Foods in Super Markets
( Chicago: Super Market Institute, 1959), p. 6.
ments are larger concerns.19 The titles given to the nonfood specialist
include nonfood buyer, nonfood supervisor, and director of nonfood
division.
19 Curt Kornblau, op. cit., p. 7.
325
52
31
17
200
78
16
6
10
48
25
27
25
48
34
18
35
55
29
16
75
55
42
3
40
43
20
37
25
47
34
19
75
80
13
7
10
59
21
20
50
73
20
7
75
87
9
4
75
73
22
5
25
24
43
33
10
63
19
18
12
60
20
20
10
42
50
8
150
56
18
26
50
60
30
10
35
61
19
20
20
31
54
15
216 Supermarketing
Impact of Nonfoods in Supers
Generally the supermarket exploited nonfoods ahead of small
grocery stores and combination markets. Therefore the sales penetra-
tipnjby _the supermart in nonfoods has been at the expense of other
fejLJQQd store retailers. The success of the supermarket in these
areas resulted in the grocery store and small combination market
imitating the supers in an effort to increase sales and profits. Data
in Table 11-9 indicate the extent to which all grocery stores and
TABLE 11-9 *
Sales of Nonfood Items in Grocery Stores and
Combination Markets, in Dollars and as a Percentage
of Total Consumption for the Year 1958.
% total
Sales
domestic
Product
(in millions)
consumption f
Tobacco products
$1,774
29
Packaged medications
220
23
Health aids
80
26
Oral hygiene products
182
48
Hair products
171
40
Shaving products
84
38
Cosmetics and lotions
52
16
Other toiletries
34
26
Greeting cards
10
3
Magazines and newspapers
60
3
Toys
21
1
Phonograph records
50
12
Housewares
265
—
* What the Public Spends for Grocery Store Products (New York: Topics
Publishing Co., 1959).
f Total domestic consumption includes all consumption, even at the farm
level, or by institutions, restaurants, or government, at the value of retail store
prices.
combination markets, including supers, have invaded the nonfood
field. Tobacco products and certain health and beauty aids almost
universally are distributed through grocery and combination stores.
Changes in Sales of Major Product Lines 217
However, the activities of the small merchant are dwarfed by the
si^permarket with its large and diversified assortment of nonfoods.
Specific merchandising practices of supermarkets in the nonfood
area and the extent of penetration in some lines can be assessed. The
Toilet Goods Association reported in 1957 that supermarkets had
captured 20.3 per cent of the retail business in toilet goods.20 Drug-
stores still were the main outlet, with 28.6 per cent of the sales; but
the supermarket has been making inroads on this lead. Furthermore,
these figures are distorted since they include high-priced perfume
normally not handled in supers. Margins for toilet goods in supers
range from 25 to 40 per cent, with an average of about 30 per cent,
and turnover ranges from 12 to 25 times per year. Total 1957 sales of
toilet goods in supers were $600 million.
Dollarwise, apparel has taken over the No. 3 position in non-food
supermarket sales; the most important item is nylon hosiery.21 The
markup for apparel averages from 30 per cent to 35 per cent. The
bulk of the merchandise is sold on impulse and is priced at $1.00 or
less. Purchases are made largely from the manufacturer, and many
of the items are branded and presold through advertising. In 1957
supermarkets sold $240 million in women's hosiery, or 33 per cent
of total industry sales of $720 million.22 More than 85 per cent of
the larger supers carry nosiery, which sells on impulse; hosiery
is conveniently displayed, attractively packaged, requires a small
amount of floor space, and turns over rapidly (up to 25 times per
year ) . With regard to complete lines of apparel, few stores have
attained the position of Grand Union, which has at least three spe-
cialized apparel buyers and in some stores has up to 14,000 sq ft of
space devoted to nonfoods, mostly clothing. The new Grand Union
stores for the most part are junior department stores along with the
food departments.
The 1957 retail sale of cigarettes was about $3 billion; of this
20 Supermarket News, May 5, 1958, p. 54.
21 Ibid., March 10, 1958, p. 58.
22 Ibid., March 31, 1958, p. 36.
218 Supermarketing
total, 60 per cent, or $1.8 billion, was sold in supers.23 Cigarettes are
ideal for supermarkets since they have a turnover of as high as 52
times per year, require small display space, and need little advertis-
ing or promotion since they are presold by the manufacturer and
sell in volume by the carton. Disadvantages of cigarettes are that
pilferage is high, markup is low, and recently so many lines are
needed that increased display space is required. However, super-
market operators have found cigarettes an ideal product to attract
both men and women shoppers.
Housewares, including pots, kitchen gadgets, and brooms and
mops, in 1957 had supermarket sales of $385 million, whereas in
1951 they amounted to only $16.5 million.24 jflouseware retailing is
considered specialized merchandising, and many operators are will-
ing to use service jobbers and pay slightly higher prices to get serv-
ice and consigned merchandise.
Hardware items carried by supers range from 125 to 950 items.25
These mainly include convenience goods purchased primarily by
women, such as batteries, light bulbs, extension cords, paint, brushes,
and small tools. These items, which carry from 25 to 40 per cent
margin, have been growing in importance each year since 1950;
however, they are still a relatively small portion of industry sales.
Phonograph records sold by supers in 1957 totaled $40 million or
10 per cent of the total industry sales of $400 million 26 Records
are handled primarily through rack jobbers. On the average, only 5
sq ft of space is needed for display, the records carry a 35 per cent
margin, and turnover of as high as 30 times per year has been ex-
perienced. Pilferage has been low. The main difficulty is that a re-
cording may be a hit one day and not sell the next. That is why rack
jobbers are the major supplier in this field.
Toy sales in 1957 were $1.25 billion nationally, of which super-
markets transacted 2 per cent or $25 million.27 Supermarkets were
23 Ibid., April 14, 1958, p. 52.
24 Ibid., April 21, 1958, p. 34.
25 Ibid., May 26, 1958, p. 80.
26 Ibid., June 2, 1958, p. 50.
27 Ibid., July 14, 1958, p. 42.
Changes in Sales of Major Product Lines 219
well behind variety stores and department stores, which transacted
about 24 and 23 per cent, respectively, of toy sales. Supers have on
the average devoted less than 5 sq ft of display space to toys. This
display space is expanded slightly at Christmas time when half of
the volume is attained. The best sellers are plastic items selling un-
der $1.00, with the most important price line being 39 cents. On the
average a super carries approximately 75 items procured primarily
through rack jobbers. Whereas the sale of toys has experienced
steady growth, supers have not merchandised toys effectively; and
this line remains a small item in total supermarket sales and total
industry sales of toys.
Cameras and sports equipment are stocked by relatively few su-
permarkets; only the biggest department store type of super offers
a selection in these categories.28 The reasons for this include low
turnover, high price, seasonal sales, and need for many items to
make a complete line. Only two photographic items provide an ex-
ception; these are film and flash bulbs, which enjoy from 33 to 40
I per cent margins, require little display space at the check-out coun-
ter, and arp ideal for impulse purchases.
Most supers have stayed clear of appliances.29 Those that have
succeeded in this area have done so with small items such as radios,
toasters, and blenders, which sell for under $50. The reasons for not
handling this type of merchandise are ( 1 ) too much display space
is needed, (2) a large number of items must be carried, (3) the
appliances are bulky to display, (4) discount houses offer strong
competition and (5) prices are too high to qualify as an impulse
item. For the same reasons, few supers have been successful with
power lawn mowers, auto accessories, and large garden items.
SUMMARY
The supermarket has become the dominant factor in every division of
food store retailing. The super reigns supreme over limited-line stores in
28 Ibid., July 21, 1958, p. 30.
29 Ibid., July 28, 1958, p. 37.
220 Supermarketing
such areas as fresh fruits and vegetables, bakery products, fresh meats,
sea food, and grocery items. Supermarkets currently gross more than 50
per cent of the retail food store sales of meat, produce, and grocery items.
Even the delicatessens have felt the impact of the supermarket, which
has opened delicatessen departments in neighborhoods where products
of that nature are sold readily. Supers are the major retail channel for
such diverse items as cigarettes, ice cream, canned fruit, bread, soap, and
bananas.
In the nonfoods area, the supermarket, with its scrambled merchandis-
ing techniques, has become a nightmare to other retailers such as drug-
stores, variety shops, and department stores. The supermarket industry
yearly continues to invade new areas in an effort to exploit customer traffic
to the fullest. Products that are attractively packaged, require small dis-
play space, are relatively inexpensive, are purchased on impulse, carry
good margins, experience a high turnover, and are subject to frequent
purchase have become "must items" for the supermarket. The trend to-
ward wider lines of nonfoods continues unabated, especially by the larger
supers. Approximately 27 per cent of the supers now have separate non-
foods departments under the management of a nonfoods specialist who
merchandises such items as apparel, toys, books, household supplies,
phonograph records, and health and beauty aids. Currently about 5 per
cent of a supermarket's sales are in nonfood lines; but the expansion in
nonfoods is expected to grow over the years as the stores become larger.
12
MANAGERIAL POLICY
AND PERSPECTIVE
INTRODUCTION
The preceding eleven chapters traced the development of the
supermarket industry, examined external factors and internal poli-
cies that influenced its growth, and measured the impact of the
supermarket movement on the food store industry. This final chapter
sets forth industry trends and conclusions of this study written from
a managerial viewpoint. The major topics to be considered are the
dynamic nature of the industry, the position of the supermarket in
its growth cycle, the trend toward "bigness," organizational con-
cepts, the science of decision making in management, the use of
research, the relationship of profit to volume, fixed expense and pro-
motion, merchandising policies, store operations, financing growth,
deterrents to progress, and the illusiveness of good will. The purpose
of these discussions is to facilitate the making of present and future
policy and decisions.
DYNAMIC NATURE OF THE SUPERMARKET
Management must realize that change is the cornerstone on which
a successful supermarket operation is based. If management stops
its quest for a better way of merchandising food and related prod-
ucts in line with the desires of the consumer, then growth will cease
and the supermarket will become just another mature retailer.
The record of this industry is one of astute and capable manage-
ment. No other segment of retailing has demonstrated greater dyna-
mism in the past 30 years. The super, a marketing innovation, came
221
222 Supermarketing
into national prominence because it pursued an unusual practice
with regard to the sale of food store products. It featured large vol-
ume, narrow margins, and reduced expenses through self-service
and a variety of other economies. In a period of depression it estab-
lished itself as a low-cost marketer of food as compared with exist-
ing food store retailers, and it passed on some of its savings in
lower prices to the consumer.
Once the movement started amidst much controversial publicity,
it continued its dynamic policy of constant change. With the rise
in national income, supers switched from the "cheapy" form to a
better-equipped, better-located and better-housed type of market.
During World War II when food rationing was in effect, the super-
markets added nonfoods.
Supers continued to capture more of the business in older, densely
populated areas where the price appeal was important. But in the
postwar period, they followed the trend to the suburbs and stressed
locations in these new areas where purchasing power was higher
and opportunity for growth was greater. These new units featured
such customer services as parking facilities, air conditioning, music,
and rest rooms.
When the trend toward one-stop shopping developed, supers ex-
ploited this preference to the fullest with their wide lines of mer-
chandise. As new products were introduced, supers in general had
more facilities to handle them than the small grocer or combination
market. The postwar trend of supermarkets was to build larger stores
to handle greater varieties of stock.
These changes increased both gross margins and expenses of the
supermarket. Margins were forced upward because there was a
tendency to expand into wide lines, including nonfoods, which
earned a higher markup than grocery items. Gross margins also in-
creased as a result of higher expenses because of the trend to "trade
up" the store and to increase customer services. In addition to the
rise in expenses attributed to improving customer shopping facili-
ties, there was an increase in the percentage of sales expended for
salaries and wages.
Managerial Policy and Perspective 223
The supermarket management attempted to combat this rise in
wages with an increase in self-service. The wider use of self-service
was in line with the wishes of the customers; and the trend towards
complete self-service continues to grow.
Chain brands, manufacturing and food processing activities, and
prepackaging are more recent areas of investigation by manage-
ment. And the future offers promise for additional change for more
effective and efficient marketing that ranges from electronic check-
out stands to spirally designed stores.
More than any other type of food store, the super has adapted
its operations and policies to meet changes in consumer buying
habits. Management has been aware of economic trends and has
shaped operations accordingly. The small stores frequently had
neither the finances nor the business acumen to profit by the chang-
ing times. The ability of management generally to experiment, to
adapt, and to take advantage of the circumstances must be con-
tinued if this industry is to grow in the future. Management of a
specific supermart operation that lacks vision in setting forth its ob-
jectives and also the means and the ability to attain these objectives
will cause that concern to become just another mature retailer.
POSITION IN ITS GROWTH CYCLE
The record of the supermarket industry is a story of growth.
Normally an industry passes through four phases in its pattern of
development or growth cycle. These stages include (1) the period
of experimentation, (2) the period of rapid growth into the social
fabric, (3) the period when growth continues but at a diminishing
rate, and ( 4 ) the period of maturity or stability.
The supermarket, an innovation, invaded a mature or relatively
stable business— the sale of food for home consumption— which is
more or less geared to population growth. And in a short span of
30 years it revolutionized the food business and related industries.
Currently the supermarket transacts about 65 per cent of grocery
and combination market sales and 57 per cent of all food stores sales.
While the industry currently continues to grow and command a
224 Supermarketing
larger share of the market, the rate of growth— not the absolute
amount— tends to decrease. This would place the supermarket in the
third stage of its asymptotic growth, but at no time to date has this
industry evidenced maturity.
Underlying reasons for past and future growth are found in ( 1 )
operating practices and techniques, ( 2 ) the favorable economic and
social climate in which to operate, ( 3 ) the basic philosophy of man-
agement, and (4) the composition of the industry. The operating
techniques developed by management stand as a monument to re-
tailing. The external factors of new developments from research,
suburbia, and prosperity show no evidence of basic change in the
immediate future. The original philosophy of management to seek
a better way to market food and related products has remained in
effect throughout. Like the New York Yankess in baseball, manage-
ment has never stopped winning and will continue under the spirit
of "success breeds success." Many grass-root operators— pioneers and
innovators who were imbued with the desire to create and who
fought their way to the top— are still with the industry. Many of
these have developed large, even gigantic, operations. Others who
have since joined the movement, including many chains, learned
there is no such term as "status quo" in this field. Those who could
not stand the pace any longer have left the industry. Inasmuch as
there are advantages to large-scale operation in this field, it is no
problem to sell an operation profitably to a larger competitor. This
trend of "acquire or expire" will continue.
Chains have now come to dominate the supermarket industry; and
yet no one concern ranks supreme. Competition prevails every-
where. The major battle is no longer a struggle among segments of
the food distribution area; rather, it is an intra-industry battle among
supermarkets. The small markets and limited-line stores are caught
in the cross fire of supermarket operators who vie among themselves
for new products, locations, and ideas to secure some marketing ad-
vantage. Intensive competition has kept and will continue to keep
the industry alert. The growth in the foreseeable future will con-
tinue independently of the increase in population and in personal
Managerial Policy and Perspective 225
disposable income. The industry will continue in phase three of the
growth cycle in the era of the "sizzling sixties/'
While the industry as a whole is in phase three of the growth
cycle, all members are not necessarily in this stage. All concerns are
not experiencing the same rate of growth; some individual com-
panies evidence maturity. Managements of individual concerns
should assess their past rate of progress, set forth objectives, and
plan for the future to attain these goals whatever they may be. In
recent years, chains with 100 to 1,000 units as a class experienced
the greatest absolute and relative growth. Concerns with one or a
limited number of stores will continue to experience a more fluctu-
ating pattern of development since the opening of one new super
influences operations significantly. But the small members of the in-
dustry are not growing at the accelerated rate of the medium-sized
chains and are becoming the more stable members of the industry.
This also is the case of the largest industry members who must watch
expansion closely, not for lack of resources, markets, facilities, and
ability but for fear of governmental interference.
SUPERMARKET TREND TOWARD "BIGNESS"
The supermarket industry today is basically one of big business.
Management must realize that forces within the industry no longer
favor "large" but "larger" scale operation. This trend toward "big-
ness" reflects the investment in each store and the size of the con-
cern that owns and operates the markets.
The "cheapy" supermarket investment was at a minimum. These
stores rented abandoned buildings and used flimsy fixtures. Since
then the investment in a supermarket has spiraled, particularly in
the postwar period because of the trends toward (1) larger stores,
(2) larger inventories, (3) more and better equipment, and (4)
holdings in real estate. Larger stores are needed to handle the in-
creased lines of merchandise and enable better display. Larger in-
ventories reflect the growing lines handled including nonfoods and
the host of convenience food products. Additional equipment is re-
quired to handle frozen foods, self-service meats, and food prepara-
226 Supermarketing
tion and processing. Many pioneer locations require the erection of
buildings and the development of parking lots. Since rented facili-
ties are not always available, supers erect many of their own build-
ings or arrange for financing them in this postwar era of expansion.
Today a modern supermarket requires a substantial investment at
one location. The degree of risk inherent in pioneering a new loca-
tion with a substantial investment limits entry into the industry to
the large operator. And the long-range trend continues toward larger
and better equipped markets with wider lines of merchandise.
Whereas the supermarket was an innovation of independent mer-
chants, the industry received its main impetus when the chains
joined the movement. By 1958 the local, regional, and national
chains dominated the supermarket field with 67 per cent of the stores
and 69 per cent of the sales. And these chains continue to capture
more of the volume and to operate the larger markets. These trends
will continue in the near future.
Management must realize that the industry has certain definite
advantages for the big operator. In financing, supers have used re-
tained profits as an important source of funds for expansion; yet,
outside capital to a large degree also has been needed. The larger
concerns have been able to acquire capital (sell stock or deben-
tures ) on a more advantageous arrangement since the degree of risk
inherent in pioneering a new location or withstanding the inroads
of an encroacher in a given market can be minimized by geographi-
cal diversification of the outlets. "Bigness" also has certain opera-
tional advantages in such areas as buying, warehousing, advertising,
and promotion. The low, fixed expense of a supermarket accentuates
territorial encroachment by the diversified large enterprise. Further-
more, horizontal and vertical integration practices benefit the larger
concerns. When chains acquire a sufficient number of outlets as a
result of horizontal expansion, they find it advantageous to integrate
vertically by assuming some of the wholesale activities. Horizontal
integration as a result of acquiring existing markets of smaller com-
petitors furnishes the needed outlets rapidly and eliminates the risk
and the increased costs of an untried location. After a chain attains
Managerial Policy and Perspective 227
a sufficient number of outlets, additional vertical integration is feas-
ible by entry into manufacturing and food-processing activities. The
chains are able to incorporate their own branded products in their
marketing strategy in this highly competitive field where price and
value are vital; and the manufactured products also can become an
important source of profits to firms of the proper size in terms of re-
tail volume.
The wave of horizontal integration that has taken place in recent
years primarily through acquisitions is creating a growing class of
medium-sized chains that wield a potent force in buying and selling
operations. Furthermore, these medium-sized chains have branched
out into manufacturing and food-processing activities that range
from coffee to store fixtures. Manufacturers of food products, even
the national advertisers with widely known brands, are finding grow-
ing competition with chain brands arising from vertical integration;
and this trend is expected to continue.
The largest member of the industry, the Great Atlantic and Pacific
Tea Company, for years was singled out by the federal government
for antitrust action as a result of its broad line of manufactured
products and its 4,500 plus outlets. Two other major concerns, the
Kroger Company and the National Tea Company, recently have
been charged with violation of the antimerger law resulting from
extensive acquisitions. In the Kroger compaint, the Federal Trade
Commission charged that 20 per cent of the supermarket concerns
now transact 72 per cent of the sales. While these actions may deter
the largest members of the industry from aggressive expansion, the
smaller members (but large in their own right) continue on their
merry pace of integration, both horizontal and vertical. The extent
to which this industry becomes one of large-size chains depends
solely on the policing action of the federal government.
Future possibilities for this industry that make for "bigness" are
mergers of supermarkets with appliance, variety, drug, and depart-
ment stores. This would enable expansion through mergers without
running afoul of the antimonopoly provisions of the Clayton Act.
Possibly, supermarket chains could be merged with discount houses.
Z28 Supermarketing
Or the pattern established by the Grand Union Company in devel-
oping its Grand- Way stores may offer expansion in the junior de-
partment store area. All these developments point toward "bigness."
Individual company management must think in terms of "big-
ness." This must be inherent in its policy and perspective. Manage-
ment must cope with these trends toward horizontal and vertical
integration and all the ramifications of reorganization. It can join
the movement in its own manner or sell out at the best possible
price. It is difficult to swim upstream or fight against statistical odds
favoring the opposition. Forces are marshaled in favor of "bigness,"
both in size of stores and size of concerns.
ORGANIZATION CONCEPTS
Management has come more and more to realize that "bigness"
leads to complications in the operation of a supermarket. This
fact of life requires that an organization— a team— be developed to
achieve with the minimum of effort the goals of the enterprise,
which, whatever they may be, are set forth by top management.
Everyone in authority must know, endorse, and be imbued with
these objectives. Otherwise friction, confusion, and disagreement
can render ineffective the organization and operation of the busi-
ness.
Top management of a large-scale operation must set forth the
major functions of the business required to achieve the desired goals.
For example, the selling operation is a major function in a super-
market; the number of individuals in the chain of command depends
upon the size and scope of the concern. The chain of command for
a large supermarket company runs from the president to the vice-
president in charge of operations. Then it passes to the district man-
agers and finally to the store managers from their respective district
supervisors. In turn, the department managers in a super are re-
sponsible to the store manager, and the crews report to the depart-
ment managers. Throughout, this organization must center respon-
sibility with certain individuals; and it is imperative to give these
Managerial Policy and Perspective 229
individuals the specific authority that goes with their assigned re-
sponsibility and to make compensation accordingly. A staff of ex-
perts is required to offer technical information and assistance to the
managers and other executives in the line operation. These staff
members— experts in such areas as research and development, mer-
chandising, personnel, advertising, promotion, and home economics
—facilitate the work of the line executives. Finally a committee of
major executives from both staff and line departments (or an out-
side management-consulting firm ) should evaluate the organization
to assure proper operation. Every supermarket organization should
be subject to frequent review.
There has been a trend in the past decade in the supermarket in-
dustry toward this type of line-and-staff organization and away from
the functional kind in which, for example, the store produce depart-
ment managers in a division are responsible to a district or head-
quarters specialized produce manager. This suggested basic pattern
of line-and-staff organization has been used successfully by large
organizations. It centers the responsibility in the store, and it en-
ables the market to operate under a line authority as a team effort.
The supermarket is a big business, and management must have an
organization geared for big business. The organization chart should
be made available to all personnel so that enterprising employees
can see avenues for advancement.
SCIENCE OF DECISION MAKING IN MANAGEMENT
Management problems of any business become more complex as
the enterprise becomes larger and more diversified. Supermarket
management faces added difficulties in decision making which re-
sult from the wide geographical dispersement of its operating units:
that is, stores, warehouses, processing plants, and factories. Further-
more, the logistics problems of handling a large physical volume of
bulky, diversified merchandise which is sold on a narrow margin of
profit become exceedingly complex. This is no industry of apron-
stringed men with strong backs. Supermarket concerns require ca-
230 Supermarketing
pable management personnel who are able to make proper decisions
at all levels of the organization. Decentralized management is essen-
tial.
Decisions basically fall into three categories, namely: (1) policy,
(2) operating, and (3) crisis.1 Policy decisions as to the broad ob-
jectives of the concern, such as extent of integration or general
product line, are set forth by the board of directors. Lesser policy
decisions involving personnel or purchasing are made by the key
executives in the concern. Operating decisions relating to the daily
activities of the company, such as the purchase of a particular prod-
uct or the pricing of an item, should be made by store managers and
department heads to allow for maximum flexibility in taking ad-
vantage of local conditions. Crisis decisions are those made on the
spur of the moment to solve an immediate problem without regard
to existing policy or due to the lack of policy. These can be made
at any level of management, but normally they appear at the opera-
tional level. Too often the danger of crisis decisions made to solve
particular problems lies in the fact that they become company pol-
icy.
Local management is confronted with the problem of making
more and better operating decisions. These decisions should be
predicated on a rational, systematic basis rather than on intuition
or experience-based judgment alone. The process of decision mak-
ing is not a substitute for judgment but is a systematic approach to
the solution of problems. For the purposes of analysis, the elements
of decision making can be reduced to:
1. Finding the problem
2. Analyzing the problem
3. Developing alternative solutions
4. Selecting the best solution
5. Making the decision effective
For example, consider two supermarkets in the same chain in ad-
jacent trading areas. One store purchases perishables from local
1 These categories were suggested by Dr. Robert Carney, Associate Professor
of Management, Georgia Institute of Technology.
Managerial Policy and Perspective 231
farmers and the other from the central warehouse. Friction exists
between the two store managers, and there is resentment toward the
division manager on the part of the one store manager who follows
orders and purchases from the central warehouse.
The problem can be defined as ( 1 ) misinterpretation of policy by
either or both local managers, (2) obedience to formal policy by
one manager and disregard for it by the other, or (3) failure to in-
clude all stores in the policy. Next, in order to develop a solution,
an analysis must be made as to what caused these two different
practices to exist in the first place. Management must know where
to find sufficient information; it must have the ability to draw to-
gether data and set forth the necessary assumptions. Otherwise a
sufficient number of alternatives will not be set forth, and the analy-
sis will be made in too narrow a framework. The analysis must
assess the information accurately by assigning the correct weights
to the data. For example, if vine-ripened produce in season is de-
manded by the vast majority of customers of one store and this fea-
ture is known to differentiate the particular market and attract
customers, then this factor that favors the practice of buying lo-
cally may outweigh many minor points favoring central purchas-
ing.
As one solution to this dilemma in produce buying, management
could inform all local managers to follow policy as set forth. A
second choice would be to have formal policy followed except in
special circumstances. Or, if the policy regarding outside purchas-
ing is too rigid and needs to be made flexible, a third solution would
be to permit decision making at the operating level.
Circumstances in each case would determine what the specific
solution to the problem should be. It is essential in good decision
making that the solution not be made in a vacuum without regard
for the human element. The goals of the individuals who will be
affected by the choices must be considered. It is also necessary to
anticipate the reaction of those affected by the solution selected be-
cause, in the final analysis, decisions will be ineffectual unless
accepted by those who are to carry them out. Other factors to
232 Supermarketing
be considered are the cost, time, personnel, skill, equipment, and
resources with which to do the job.
The above problem could have evolved from lack of company
over-all policy on outside buying, or it could have resulted from a
crisis decision made by a division manager or store manager. This
crisis decision may have become a precedent for the one store to
follow. Management must organize and operate the concern so as to
require the fewest number of crises decisions. Yet, policy should
not be so rigid that store managers are prevented from making sound
decisions affecting the operation of their respective stores.
USE OF RESEARCH
The small food store operator knows his customers; he can survey
his domain daily, ascertain his requirements, and make his decisions
on first-hand information. Supermarket management is more re-
moved from the customer./ The business is larger and more complex,
the operation is more widespread and diversified, and competition
among the markets is rampant. These factors indicate the growing
need in a supermarket for research to furnish reliable data to man-
agement for decision making.
Research activities in a supermarket are directed toward market-
ing or merchandising functions and operating practices. Frequently
the marketing and operating activities in a supermarket are difficult
to separate. By definition, marketing research is the gathering, re-
cording, and analyzing of all facts about problems relating to the
transfer and sale of goods and services from producer to consumer.2
Operations research is the prediction and comparison of the values,
effectiveness, and costs of a set of proposed alternative courses of
action involving man-machine systems.3 Operations research uses a
model of the action that has been developed analytically by a logical
and, when feasible, mathematical methodology, the values for
2 Harper W. Boyd and Ralph Westf all, Marketing Research ( Homewood,
Illinois: Richard D. Irwin, Inc., 1956), p. 4.
3 Joseph McCloskey and Florence Trefethen, Operations Research for Man-
agement (Baltimore: The Johns Hopkins Press, 1954), p. xxiii.
Managerial Policy and Perspective 233
which are derived from past actions or designed operational experi-
ments. While operations research normally has a broad connotation
and overlaps the area of marketing research, the technique is used
in supermarkets more narrowly to denote logistic problems in the
physical movement of merchandise in performing buying, selling,
warehousing, delivery, and handling functions.
Marketing research applicable to the supermarket industry in-
cludes activities pertaining to (1) markets, (2) products, (3) moti-
vation, (4) internal sales analysis, and (5) advertising and display.
Market research includes a study of the characteristics of the cus-
tomers and their purchasing habits. It also embraces the detailed
research needed for new store locations. Prior to sinking a substan-
tial investment in a new outlet or contracting to make rental pay-
ments over a long period of years, management must make exhaus-
tive studies of the past, present, and future possibilities of the
location. Only too frequently markets have been opened in unsuit-
able areas. This practice is abetted by promoters who are willing
to make deals and concessions to put the land into use and by
supermarket operators who are willing to take on an outlet with
low, fixed expenses so that a competitor won't get it, even though
the location is questionable. Product research measures consumer
preference for brands, types of products, packaging, size, and other
physical attributes. Motivation studies measure why people buy a
particular product or patronize a certain market. The store image
in the minds of the customers can be depicted along with psycho-
logical attitudes held by consumers as to color and style of markets.
Sales analysis furnishes information on the movement of particular
products as well as profitability of departments and product lines.
Advertising and display research measure the effectiveness of the
types and kinds of strategy employed.
Of all the research designs available to perform the various mar-
keting research studies, the experimental method offers supermarket
management the most unusual opportunity to collect data as to
permit clear and unconfused conclusions as to the correctness of
an hypothesis which involves cause-and-effect relationships. The
234 Supermarketing
data obtained from experimentation can furnish management vital
information for decision making. Supermarket concerns possibly
have the best facilities of any business for conducting experimental
research in the area of social science. Only those industries engaged
in the physical sciences appear more favorably situated to conduct
experiments. Supermarket management can use experimentation to
check advertising effectiveness, display techniques, product prefer-
ences, pricing strategy, and packaging. Even small concerns can use
the various experimental methods such as the before-after, the be-
fore-after-with-control group, and the after-only-with-control group
designs. For example, the operator of only one store can measure
for one week the sale of potatoes in the traditional package, intro-
duce a new packaging method for the following week, hold all other
factors unchanged, and measure the difference in sales. Consumer
panels which can serve as a valuable adjunct to the buying com-
mittees should not be restricted to the large companies. To facilitate
experimentation, concerns should designate certain stores for the
purpose of conducting experimental tests. Necessary facilities for
conducting tests can be maintained permanently.
Opportunities for the successful use of operations research exist
in supermarkets in the physical movement of goods in all areas.
There is only a specific amount of shelf space in a given market;
each new item purchased takes its place only at the expense of some
other product. Operations research can furnish quantitative aids in
determining what to buy and how much to buy. This technique also
can facilitate the warehousing and delivery of groceries. For ex-
ample, one concern revamped its entire delivery system so that se-
lectors at the warehouse loaded the trailers daily, drivers delivered
them at night during periods of little traffic, and store managers as-
signed the correct number of grocery clerks to be available for un-
loading and stocking shelves on a predetermined morning. Opera-
tions research also can be of value in the area of selling by increasing
efficiency of personnel in stocking shelves and operating check-out
stands. For some concerns, it has led to the establishment of stand-
ards by departments for man-hours expended in relation to sales.
Managerial Policy and Perspective 235
Produce and meat departments, for example, need not necessarily
have the same ratio of sales to man-hours.
These illustrations indicate the types of opportunities that are
available in a supermarket for operations research. The principal
contribution of this technique is that it presents to management al-
ternative opportunities or courses of action in quantitative terms.
Management can use these data in making decisions.
Product research of the technical type involved in producing an
item that will accomplish certain results has been passed on to the
jnanufacturer by the supermarket industry. Expenditures of this
type thus do not appear as a cost to the supermarket in performing
its functions. Competition for shelf space has been so intense that
food manufacturers have been forced to develop a multitude of new
and improved products which are marketed in cooperation with
supermarket concerns. This research involved in the creation of form
utility rightfully belongs to the manufacturer. But, as the super-
market industry becomes more integrated and active in manufactur-
ing, management may have to face the problem of product develop-
ment and not depend so much on the research accomplishments of
other manufacturers as it has in the past. Some compromise has ap-
peared in which supermarkets and food manufacturers have en-
gaged in joint research efforts.
In summary, the larger members of this industry have tended to
do most of the research in the areas of marketing and operations.
The total amount spent as a percentage of sales has appeared neg-
ligible for the industry as a whole. Management of some concerns
has rationalized its position on limited research by contending that
this activity is not needed, inasmuch as operations are flexible and
the market is in constant contact with the consumer. Or, under the
guise of research, management has used casual observation to sub-
stantiate ideas or concepts. Casual observation is not scientific in its
approach because it is not objective, subject to accurate measure-
ment, or conducted exhaustively. Managements of individual con-
cerns must assess the benefits derived from true research versus the
cost involved because of the narrow profit margin on which they op-
236 Supermarketing
erate. Money properly spent on research can more than pay for itself
in economies of operation and better merchandising.
RELATIONSHIP OF PROFIT TO VOLUME, FIXED
EXPENSE, AND PROMOTION
A supermarket is geared by management to transact a large vol-
ume on a narrow margin of profit. The industry has flourished even
with a relatively low profit margin expressed as a percentage of
sales since this rate can reflect a sizable dollar profit when related
to a large volume. This concept has been expounded by manage-
ment throughout as a basic financial tenet.
But, this truism is only a partial answer to the super's financial
success. The factor of large variable costs and expenses, or of low,
fixed expenses estimated at 6 to 7 per cent of sales, must also
be considered as a factor in the profit picture. The low fixed ex-
pense of a supermarket and the ability of fixed expense to remain
constant over a fairly wide range in sales accentuate the ability of
a concern with territorial diversification to invade a new area. Stores
for a particular location are planned to transact a certain prede-
termined present and future volume. The design is such, however,
that a super can still operate profitably even though a considerable
variation in actual volume from planned sales occurs. The absence
of a large fixed expense is a beneficial factor for a store in which
sales fail to materialize. On the other hand, the fact that the fixed
expense remains constant, even with a considerable increase in sales
over normal anticipated volume, benefits the volume-building mar-
ket. Instead of the 2 to 3 per cent profit before taxes, some stores
have earned 5 per cent on sales as a result of a high level of volume.
Even though the investment in a new super is sizable, the fact that
fixed expenses are low relative to sales is an added inducement to
new territory invasion.
For an industry faced with this relationship of profit to volume
and to fixed expense, the additional or marginal customer is of con-
siderable importance. The marginal family that spends $1,000 to
$1,500 per year in a super must be obtained and retained. The mar-
Managerial Policy and Perspective 237
ginal family reflects a sizable increase in profits, both as a percent-
age of sales and of net worth for a supermarket operating at the
normal volume for which it was designed. For example, if local man-
agement of a typical super operating at normal volume can induce
an additional hundred families to shop regularly at the market, an
increase in profits of 1 per cent as a percentage of sales for that
market is possible. Retention of the consumer is vital since a loss of
a customer can reduce profits just as the addition of one can increase
return. This is why trading stamps and other promotional devices
have met with such wide adoption by the industry. In the near
future, increased competition will make for even wider use of pro-
motional devices. Management easily could consider funds spent on
continuous promotion as a short-term capital investment on which
earnings now and in the very near future are possible. Some of the
best creative brainpower should be devoted to the development of
new promotion ideas.
The prize of profits is held out to all supermarket competitors in
a trading area as a significant reward for attracting these marginal
families. Unfortunately, most promotion tends to be transitory in
effect. Other operators mimic the successful concern. Thus it is a
constant race among the competitors to attract the customers. And
while the profit prize may not be fully attained by any one market,
the manager who doesn't advertise and promote to gain consumer
patronage will be left literally "in the dust," with the remaining com-
petitors still in the lead. As more supers are opened, the marginal
families continue to be drawn away from the existing markets and
detract from their earnings. However, new markets should be
opened only after careful research has been performed to forecast
the success of the venture. Yet, the wide range of volume over which
a given market can operate and still be profitable is a lure to open-
ing new outlets and will continue to make for highly competitive
conditions. There is no lessening of it; the conclusion is that compe-
tition among the supermarket members will be more intensive in
the years immediately ahead.
238 Supermarketing
MERCHANDISING POLICIES
Executives in retail concerns basically must be merchandisers. This
is especially true for all levels of supermarket management. All store
personnel must realize they are part of a merchandising team. Their
economic justification for employment is that the store in which they
work adds value to the merchandise sold. Basically, a supermarket
buys 81 cents worth of merchandise from its suppliers which it sells
for $1.00 to its customersVWhether a consumer will pay this 19-cent
differential is a direct function of the merchandising skill of the
store management and the efforts of all employees.
The term merchandising was defined in this text as the practice
of making certain that the products sold meet the needs and desires
of the customers; at the same time the goods must be presented
effectively. In the main, supermarkets have been effective merchan-
disers of food products. On a more limited scale, supers have been
moderately successful in merchandising nonfoods. At the local level,
skillful tactics in merchandising nonfoods have not always been
demonstrated.
Supermarket executives merchandise when they screen the 100 to
200 new products presented weekly for their inspection and decide
which ones will sell. Powerful buying committees have been estab-
lished to help make the selection process more rational and free from
personal prejudice. In cases of doubt, the marketing research tech-
niques of test stores or consumer panels have been used. This selec-
tion of merchandise by management constitutes a major factor in
determining the success of the venture. In an endeavor to please
the consumer further, management has increased the number of
lines handled almost yearly in the postwar era. The wide line of
products in turn has forced manufacturers into a continuous battle
both to attain and then retain shelf space.
Food manufacturers have become highly cognizant of product
policy. They have developed through research a broad line of con-
venience goods and other new items such as pot pies, TV dinners,
and instant hot cereals. The near future of food manufacturers de-
Managerial Policy and Perspective 239
pends on producing new convenience goods which meet the needs
of the consuming public. In turn, these and related products must be
pulled through the channels as a result of extensive advertising and
promotion. As new and really improved products continue to come
out of the research laboratories and into the markets, producers will
of necessity need to cooperate with the supermarket operators to
develop merchandising strategy that will move the goods. These
new items are the life blood for the dynamic supermarket which
strives for added volume and greater profit while retaining its basic
competitive position in a trading area.
The use of chain brands as a part of merchandising strategy has
been on the increase in recent years. Wider use of chain brands will
continue as stronger and larger supermarket chains dominate more
of the industry. The increased use of chain brands in canned goods,
for example, will in time lower over-all margins on these items.
Manufacturers may be forced to innovate pricing systems in which
staples as price leaders compete with chain brands. The bulk of the
profit will be earned by the manufacturer in new food specialties
that the supermarket will not find suitable to manufacture. But the
supermarket industry will become more powerful as it branches out
into untried areas such as private branding in prepackaged meats.
The pendulum of customer satisfaction that once favored the manu-
facturer is now swinging wider and wider over the area of the super-
market industry.
In the nonfoods area, the trend will continue toward increased
sales of these products. The rapid growth of separate nonfood de-
partments under a nonfoods specialist coupled with the building
of larger stores able to handle more products pretells the story.
While nonfood sales currently are about 5 per cent of total sales of
a supermarket, this percentage can easily be doubled in the near
future by adding general lines of merchandise. However, super-
markets must learn to do a more effective job of merchandising non-
foods. This includes better product plans and control of inventories.
In addition, pricing policies more in fine with those of food prod-
ucts must be employed; and merchandising techniques for the sale
240 Supermarketing
of seasonal products must be developed. Inasmuch as there is a
strong organizational trend toward separate nonfood departments
under a specialist, these merchandising prerequisites can be at-
tained.
Merchandising also includes the effective presentation of goods
to the consumer. The produce manager who trims the decay from
the lettuce to make the head more salable is merchandising as is the
manager who marks sale prices on all badly dented cans and places
them in a cart near the check-out stand. Displays that create impulse
sales also are part of the merchandising function. Supermarkets
have been the innovator and proponent of self-service and impulse
selling. As a result of mass display, which psychologically tends to
make people buy, the supers have found an unusually prolific source
of unplanned purchases. However, wider use of experimental re-
search must be adopted in order to gain maximum benefit from dis-
play. For example, before-and-after studies should be used more
widely to measure the impact of a particular display arrangement.
Also, psychological tests of the consumer should be made to ap-
proach more scientifically the subject of display.
The display practices of the supers in turn have forced manufac-
turers to revamp their merchandising policies and to adopt better
packaging, branding, and display practices. As supermart chains
become more powerful through integration, manufacturers may be
forced to establish tailor-made displays, promotions, and deals for
different kinds and classes of stores. In turn, representatives of the
manufacturers will be better merchandisers and devote less time to
being only salesmen.
STORE OPERATIONS
Management must realize that the economic justification for a
supermarket lies in the time, place, and ownership utility (or use-
fulness) the store gives the merchandise it sells. This measure of
value imparted to the goods is measured by the gross margin. How-
ever, in order to perform its economic function, a super must have
physical facilities and personnel with which to operate. These areas
Managerial Policy and Perspective 241
of store operations are growing in importance and complexity with
the size of the markets and the unionization movement.
Management currently faces the problem of furnishing individual
stores more and more selling space and larger parking facilities. One
solution for additional selling space is better control of inventory
and ordering procedures through use of electronic computers so that
less storage is needed at the store. Also, processing activities con-
ceivably could be centralized in many concerns; this would furnish
additional display facilities. Thus, within limitations, management
can remodel and offer a market some additional selling space. How-
ever, the added space from relocating processing activities in most
instances will not offer sufficient space, and the markets will have
to be relocated in the same area if possible in the near future. This
change in location will have strong repercussions on the financial
community holding mortgages on present supermarket properties
that lack sufficient facilities. Furthermore, management must design
new stores with an eye on costs, present and future requirements,
and flexibility in the use of space. The importance of planning space
requirements is exemplified in a recent study of 100 markets that
were built in the year 1940.4 Only 23 markets operate unchanged,
whereas 26 were abandoned and 51 required major remodeling.
Another operating feature that may reward a chain organization
with patronage loyalty is chain differentiation. With the trend to-
ward fewer and larger concerns in this industry, the chains should
take on more of an individualized appearance as to color, design of
store fixtures, arrangement, and outside appearance. This familiarity
will wed customers to the entire chain and not just one store.
As markets become larger and require greater investment, better
management at the local level is required constantly. There has
been an organizational trend in the industry in the past decade for
each store to be under a general manager who is responsible for
operations at the store level. Department managers report to him
and not some central specialized supervisor. Store managers must
4 "NAFC Looks into the Future," Super Market Merchandising, XIX, no. 12,
December, 1955, p. 61.
242 Supermarketing
be trained to be business executives with administrative prowess;
they must be merchandisers, advertisers, and publicists as well. Ex-
ecutive development programs for middle management in decision
making and case study are a must if this industry is to be successful
in operating larger stores with greater varieties of merchandise in
the future. Some companies have taken steps in this direction by
sending key personnel to universities that offer programs in execu-
tive development; others have developed short-term clinics for their
personnel. The Super Market Institute's program of executive train-
ing has drawn favorable response, but more positive action must
be taken in this entire area of development and management train-
ing.
Many concerns have attracted young, capable future leaders, but
the industry as a whole apparently has failed to draw its share of
junior executives in competition with industry generally and de-
partment, drug, and variety stores in particular. Universities hear
little about the supermarket industry. Supers have not made them-
selves competitive in search for the top talent needed because of the
growing size of markets and the intense competition facing the
stores. This does not mean to imply that hard work and long hours
should be played down, but the rewards to management could be
accentuated in salary, bonus, stock options, insurance, and retire-
ment. Organization charts clearly showing paths for promotion
should be publicized; opportunities for training programs and ex-
ecutive development must be made available.
No big business can operate without effective personnel. Workers
are a vital part of the operation in a supermarket. Those who have
daily contact with the public, from the grocery clerks stocking
shelves to the check-out personnel, form a part of the store image.
Supers should be a good place in which to work as well as to shop.
Individuals must be trained, motivated, and made part of the store
team to make them efficient. In this era of high labor costs, the super-
market stands today as a monument for all retailers and industry
alike to envy. The supermarket and self-service are synonymous, and
yet, 6 to 7 per cent of the sales dollar expended on labor is a sub-
Managerial Policy and Perspective 243
stantially larger percentage of the sales dollar than that paid out
by the pioneers in the field. Added services have been offered the
consumer in "traded up" markets that necessitate additional per-
sonnel expenditures, but management must watch this expense so
that the super does not lose its "claim to fame." Increased expense
for personnel must be matched with increased output from the
worker; and management must furnish the equipment and facilities
for increased efficiency. Rising expenses generally will continue to
be a constant threat for management, which must counter with in-
creased productivity from the worker, more efficient methods and
equipment, complete self-service, better use of resources, and the
elimination of unnecessary frills.
FINANCING GROWTH
The aggressive expansion plans pursued by management in this
industry have made financing a major issue. Dynamic growth over
a protracted period of time cannot occur without adequate funds.
Management has acquired assets to operate the business through
(1) reinvesting of earnings, (2) selling of equity securities, (3)
borrowing, and (4) leasing. All four methods are used widely.
Operations of the members of this industry in the main have been
profitable. While the earnings as a percentage of the sales dollar
have been a modest 2 to 3 per cent before taxes, profits on equity
capital have appeared excellent. Over the years management has
plowed back earnings into the business to finance growth and im-
provements. Dividend policies have been conservative, even for
companies with widely held common stocks. Since the industry is
expected to grow, no major change in this dividend policy for the
industry appears imminent. Management of individual concerns
must realize, however, that if growth diminishes, stockholders will
insist on larger dividends.
Many of the supermarket chains that dominate the industry have
sold equity securities in the capital markets. The investment attitude
of the public toward the industry in general and specific concerns
in particular is important if the industry is to obtain equity funds
244 Supermarketing
advantageously. Many investors are attracted to growth equities.
The retail food business in itself is relatively stable and noncyclical.
It faces gradual growth as the population rises; and it is influenced
only slightly by changes in per capita family income. This also is
the case of the electric power industry whose members generally
have attained a high investment status for their equity securities as
a result of the monopoly feature in their services. Supermarkets, the
principal segment of the food store group, face strong competition
in the market place. They have countered with aggressive practices
that have imparted growth characteristics to their division of the
food store group. But, as a class, supermarket shares are not likely
to attain in the near future the status of a utility equity because of
this turmoil in the market. On the other hand, the supermarket con-
cerns lack the growth aura of companies in the fields of chemicals,
missiles, and electronics. Stocks of these concerns traditionally sell
at a high multiple of earnings and considerably above their net tan-
gible book value per share. Equity financing for supermarkets gen-
erally will continue more on the basis of good-grade industrial con-
cerns. The financial community is aware that the supermarket is not
completely immune to recessions. Competitive pressures can force
concerns to pass on to the customers reductions in the cost of mer-
chandise. These pressures, coupled with the trend toward handling
merchandise with higher margins, can squeeze gross profit in a
period of economic turbulence, such as during a steel strike. Since
the cost of handling food in a supermarket is tied more to the ton-
nage handled than to revenue, expenses in a recession can increase
relative to sales and squeeze net profit. In addition, the growing
trend toward more luxury items can make dollar sales more volatile.
Many individual members of the supermarket industry, primarily
the medium-sized chains, have experienced remarkable sales and
earnings growth resulting, in part, from acquisitions. The financial
community has recognized these features and has placed a premium
price on the common stocks of these concerns more in line with
those of other growth equities. The very largest concerns, ham-
Managerial Policy and Perspective 245
strung by possible antitrust legislation, tend to have their common
stocks sell on a more conservative basis. The small concerns or
supers with one store are for the most part dependent on local fi-
nancing for expansion. As a result of the risk involved in a limited
number of outlets and the relatively small number of possible shares
outstanding, the small companies will find it difficult to attract equity
funds in the national capital markets and will depend upon the in-
| genuity of management to obtain equity funds locally.
Supermarket management must borrow on the most favorable
terms possible in this narrow-profit industry. To do this, it will be
I necessary to maintain a satisfactory financial condition and operat-
ing record. Furthermore, management (especially of the smaller
firms) should make certain that capable younger executives are
available in the organization to take over the reins. This has been
! a weakness in many of the smaller firms and in part has contributed
to the increase of mergers in the industry. Supermarkets have bor-
rowed extensively for working funds, for expansion, equipment
financing, and real estate acquisitions. It is not unusual for debt to
be equal to net worth. There appears to be no letup in the need
for funds in the immediate future; thus debt will remain heavy.
Management of supermarkets has been astute in its method of
controlling assets through lease. While a concern is liable for lease
payments over an extended period of years, the company actually
uses assets that are financed over a long term by others. Supers have
been forced to pioneer new locations with modern stores that re-
quire a substantial investment in equipment. Under the lease ar-
rangement, the fixed assets used do not appear on the balance sheet,
nor do the lease payments contracted for over a period of years ap-
pear as a liability. Inasmuch as supermarts are merchandising or-
ganizations that thrive on a large volume of fast-moving merchan-
dise, the lease has proved an essential element in expansion. With
growing need for cash to finance larger inventories and moderniza-
tion, the lease method will be more essential in the future, espe-
cially during periods of tight money and high interest rates.
246 Supermarketing
DETERRENTS TO SUPERMARKET GROWTH
Management must recognize certain limiting internal and external
forces that restrict the supermarket growth; some concerns are par-
ticularly vulnerable.
Consider the first limitation, namely, the distribution cost cycle.
According to Malcolm P. McNair:
It seems to be characteristic of new types of distributive enterprises
that in the first state of their development they gain a foothold primarily
by means of low prices. In the second stage they "trade up" the quality
of the merchandise carried, and in the third stage they compete by offer-
ing services. Companies in this third stage, unless they are managed with
exceptional ability, not uncommonly encounter an increasing cost of doing
business, a rising ratio of fixed investments to total investments and a de-
cline in the rate of return on capital.5
At the time this concept was advanced, the large food chains had
made substantial sales gains in the food store industry. But they had
entered the third stage of the cycle, and their rate of growth was
decreasing. The analysis in this text indicates that although the
supermarket industry is relatively young in years and has shown
considerable growth, it also appears to have entered the third stage
of the distribution cost cycle. To date, supermarkets have operated
in a progressive manner; they have demonstrated ability to experi-
ment, to adapt, and to take advantage of changing trends. This has
had a direct bearing on their development; but in this third stage,
management must operate with exceptional ability if this industry is
to continue expansion. There is the ever-increasing problem of at-
tracting young men to this field who are managerial timber. Future
skilled executives must be developed for an industry in the third
stage of the distribution cost cycle. Currently, the competitive situ-
ation confronting the supermarkets, coupled with the basic nature
and composition of the industry, indicate vigorous administration
5 Malcolm P. McNair, Expenses and Profits in the Chain Grocery Business
(Cambridge: Harvard Business School, Bureau of Business Research, 1931,
Bulletin No. 84), p. 21.
Managerial Policy and Perspective 247
in the near future. Those individual concerns under ineffective man-
agement in this third stage of the cost cycle will continue in the
doldrums until management changes or the company expires.
Another limitation to the growth of this industry is that the small
food stores cannot be completely eliminated. They fall by the way-
side at a remarkable rate, and this trend will continue. But, owners
of many small food stores are not aware always of their costs; they
live in the rear of the premises, and perhaps the husband is em-
ployed elsewhere during the day. The everlasting hope for gain and
independence keeps many small stores in business.
Machine vending, certain limited-line stores that are well en-
trenched, and the superette also will prevent the supermarket from
completely dominating the food store industry. Strategically located
superettes handling limited brands of convenience items will con-
tinue to play a role in food store sales. They have copied the tech-
niques that made the supermarts low-cost operators. Many operate
at an expense rate that compares favorably with that of a super.
Membership in buying associations or cooperatives enables them to
lower the cost of merchandise purchased and to realize other ad-
vantages such as cooperative advertising. These endeavors of the
superette have tended to reduce the price advantage of the super-
market.
In time the pattern of food store retailing probably will be one
in which the majority of the so-called convenience items needed
for supplemental shopping will be handled by superettes or by ma-
chine vending. A small core of limited-line stores will handle special
products. Small combination markets will become relatively insig-
nificant volume wise. Strategically located supermarkets will domi-
nate their respective trading areas as well as the food store indus-
try. Gigantic supers, merchandising a wide line of junior department
store products as well as foods, will be the core store dominating
large shopping centers.
Another deterrent to extensive growth is the limitation of size of
supermarkets. All stores cannot be gigantic operations since some
consumers prefer the personal touch and friendly attitude on the
248 Supermarketing
part of the store personnel that cannot be obtained easily in a mam-
moth operation. Personalized management can lead to more com-
munity acceptance of the store, particularly if it is a member of a
large chain.
In 1958 the supermarket transacted 57 per cent of total food store
sales. Eventually the super will encounter market saturation at pos-
sibly 80 per cent of total food store volume. When this condition
occurs, progress will be limited to population growth unless super-
market activities are channeled into other fields of retailing, whole-
saling, food processing, and manufacture. With the vast distribution
system that members of this industry have attained as the founda-
tion, supers can invade these other areas successfully. Unless the
government intervenes, this appears to be the future pattern.
The adaptable supermarket has added an increasing number of
nonfood lines. This movement has been one of the industry's recent
developments to increase sales. Here, too, there are limitations, but
these have not been reached. The supermarkets' successful sales of
these nonfood lines have forced drug, variety, and department stores
to review their selling techniques. All three of these competitors in
the nonfoods area are boosting the number of their outlets, embark-
ing on modernization programs, and opening branches in the sub-
urbs and in shopping centers. They have adopted self-service or
simplified selling and have copied the display techniques of super-
markets. The chain members in these areas have been growing in
size through horizontal and vertical integration. For example, many
drug chains now produce pharmaceuticals, toiletries, and ice cream;
many process films. At the retail level, these drug chains have broad-
ened their product lines to include glassware, books, hardware, toys,
jewelry, foodstuffs, and appliances. Where local regulations permit,
packaged liquor has been dispensed. Department stores, with their
new satellite units in outlying shopping centers, also handle in-
creased lines of baked goods, frozen foods, and convenience food
products such as completely prepared dinners for the busy shopper.
Variety stores have broadened their lines in the impulse soft-goods
area. The trend toward scrambled merchandising among all types
Managerial Policy and Perspective 249
of large retailers continues on the increase. In the near future there
will be more stress on food items of the convenience type by the
drug, department, and variety stores. Trends are under way to make
all three of these resemble the supermarket more closely.
THE ILLUSIVENESS OF GOOD WILL
The supermarket is constantly in the public eye inasmuch as food
shopping is done frequently. It is imperative that supermarket man-
agement recognize the importance of the good will that establishes
a patronage attachment for trading at a particular store. No funda-
mental differences exist among supermarkets as to basic products,
prices, and values, inasmuch as this field is so highly competitive.
Any manager who believes that the only prerequisite for success
is to provide good merchandise values at competitive prices is in
error. Management must fashion a store image that is favorable in
the eyes of the general public in order to gain a patronage follow-
ing.
Store differentiation can be due in part to appearance, facilities,
advertising, promotional devices, or special merchandising tech-
niques, all of which have been stressed in this chapter. These are all
part of the store's personality. But there is some illusive factor in
the store image that is difficult to measure; generalizations about
it are difficult to make because of the diverse nature of the industry
and community differences. In the main, this illusive feature in good
will for an individual concern and for the industry as well is a func-
tion of management's attitude toward the consumers, the suppliers,
the employees, the governmental authorities, and the community in
which it operates. How well management meets the expectations
of these interests will be reflected in part in the store image and in
the success of the venture. These preconceived standards of be-
havior on the part of the different groups are not necessarily in
harmony with each other, nor are they always of the same impor-
tance to the welfare of the supermarket concern.
The supermarket is not an eleemosynary institution; it is operated
primarily for the profit of the owners. But its operations are influ-
250 Supermarketing
enced by the public's attitude toward it. What has supermarket
management done to generate a favorable image in the minds of
these interest groups?
To the American consumer, the supermarket has lowered food
costs and raised the plane of living. It has given the customer what
is wanted at a lower cost. These are its most noteworthy achieve-
ments from the viewpoint of the consumer. Individual concerns that
have not been completely consumer-oriented have suffered in the
battle for survival in this competitive industry. While there are limits
in placating the customers, conditions in this industry dictate that
management must consider foremost in its decisions the wants and
desires of the consumer so that it can return a satisfactory profit to
the stockholders.
Supermarket management has shifted the balance of power away
from the food manufacturer and in the direction of the retailer. As
a result of this countervailing power, supers have tended to relegate
the wholesaler more or less to a status of delivery agent for the
manufacturer who performs the selling function but who cannot
handle physical distribution of the merchandise as economically as
the wholesaler. Manufacturers have been forced to give ground in
all quarters. Their entire selling program has undergone change for
the better by lowering distribution costs. Supermarket management
must realize, however, that the functions of the manufacturers still
are vital to the success of this industry despite all its integration
practices. Many consumers prefer the national brands. Management
must continue to work cooperatively with the suppliers in an en-
deavor to merchandise on a profitable basis all the products the
consumer desires. Unless fair dealings exist between the supers and
the manufacturers, new-product development will be retarded, and
the supers will lose their "life blood" or added source of profit re-
sulting from new items.
Management's relations with employees affect the store image.
In order to attract and keep desirable personnel, management must
offer workers steady employment, opportunities for training and
advancement, satisfactory working conditions and hours, fringe ben-
Managerial Policy and Perspective 251
efits, and a competitive wage. These are all subject to differences in
opinion between management and employees, but the differences
should be resolved without resort to strikes so as not to engender
bitterness that may be expressed by store personnel in daily contact
with the customers. The relatively pleasant employee-employer re-
lations that have characterized this industry must be maintained,
and the markets must continue to function under a team effort.
Decisions of supermarket management that affect relationships
with the community and the government should be summed up in
the phrase, "Supermarkets Are Responsible Citizens." Obviously a
supermarket cannot devote 100 sq ft of space for a charity cookie
sale, but management must stay in tune with the expectations of
the community. These differ by location, and management on the
proper occasions should make its sidewalks available for charity
drives, put signs in the windows for relief funds, and assist in blood
banks and cancer drives. How active managers are in civic affairs
will depend on the community attitude. Management must know
what is expected of the market to make it a responsible citizen.
Still another problem of community relationships is the advis-
ability of continuing a policy of "scrambled merchandising" which is
detrimental to many limited-line stores and small combination mar-
kets near it. Similarly, other community members in the nonfood
areas feel the impact of the supermarket. Management's drive to
sell general merchandise that is easily displayed, attractively pack-
aged, inexpensively priced, and impulsively purchased has been to
the detriment of department, drug, variety, and hardware stores,
to name but a few. While the battle of the market place occurs daily
and no retailer has the assurance of guaranteed profits, the victori-
ous supermarket should not disdain its rivals. An old saying should
be remembered: "Don't rub salt into the wound."
To paraphrase from a childhood game, the supermarket currently
is "King of the Hill/' How long it remains on top is a function of
the industry's skill in keeping a favorable image in the eyes of the
general public whose wants must be served so that the cash register
will continue to ring up larger profits. For the individual firm, sue-
252 Supermarketing
cess in this highly competitive industry will depend primarily upon
management's ability to think creatively so as to be a leader in judg-
ing the wants and whims of the consumer. And if a competitor gains
some marketing superiority, success will hinge further on manage-
ment's ability to recognize quickly any disadvantage and to take
action accordingly.
APPENDIX A
119 COST-CUTTING IDEAS
Management is confronted with the Herculean task of controlling, and
if possible reducing, expenses of operation if the supermarket is to per-
form its merchandising activity at a profit. Recognizing this need, the
magazine Super Market Merchandising devoted the majority of its April,
1958, issue to the problem of "How to Fight Costs and Win." One article
from this section, "119 Cost-cutting Ideas," contained a reference list of
pragmatic suggestions which appear to be of extreme value to the super-
market operator who faces the task of expense control at the firing line.
This check list is classified according to operations, labor, warehouse and
transportation, construction and maintenance, store departments, and
back room.
Operations
1. Accident costs can be reduced by equipping each store with a
small flash camera. Kept at a handy location, pictures of each customer
accident can be taken immediately. Experience demonstrates that cus-
tomers will not file exaggerated claims if they know a photo has been
taken.
2. A certain degree of shrinkage can be controlled in the area of the
direct vendor. A good policy is to instruct all vendors not to put mer-
chandise on shelves, or mix merchandise with any stock on hand until
the person in charge of the department has checked in the merchandise.
When a vendor leaves, he must have any outgoing packages checked to
see that no merchandise is carried out that is unaccounted for.
3. Have stores send in weekly cash reports instead of daily reports.
This should save a lot of time for store managers as well as for book-
keepers.
4. Proper use of self -insurance applied to such things as collision,
plate glass, holdups, and even fires, boilers, and cargos can save you
considerable money. Explore its possibilities with qualified insurance
agents or others who have had experience with it.
5. Every time you create a new form, you increase clerical costs be-
cause each piece of paper has to be handled by many people. Take time
out to review the use of your forms and simplify them. It is a good idea
to have a trial run of 60 to 90 days on every form that you introduce be-
253
254 Appendix A
fore making it a permanent part of the business. You may decide after
two months that some of these forms are worthless, and you can save on
further clerical expense.
6. To save paper work on price reduction reports, make use of pilot
stores. Here you can get information that you can apply to all your other
stores.
7. By sorting the checks yourself, you can reduce the bank's charges.
This calls for putting the checks of one type in an envelope.
8. There is something in the Draft Plan to bring money in fast from
your neighborhood transfer banks to the banks used by the main head-
quarters disbursement bank. The bank informs headquarters of the total
deposits to be made the next day. The money is made available at the
headquarters disbursement bank. The bank informs headquarters of the
total of drafts. This plan will lower the daily balance in the neighborhood
banks, but the extra charge may be worth it, since it makes so much ready
cash available at headquarters.
9. You can reduce charges on customer checks by sending them di-
rectly to the main depository bank rather than depositing them in the
local transfer bank.
10. Are you sure it's worth the cost and effort to list every customer
check on a separate tabulation, just in case checks are stolen? A study
of this may reveal that you are recovering very little money over a long
period of time. You may be burdening your managers with useless and
time-consuming work.
11. If you are a small company, it may pay you to hire an engineering
service to reduce your insurance rates. The bigger companies use their
own men for this purpose.
12. Don't rely on a building alarm for warehouse control. Either have
an ADT system or tie your alarm in with the local police depart-
ment.
13. Pay store employees in cash. They prefer it. And you can save
on the bank charges, which can go as high as 10 cents on each payroll
check. This method is being used by a national chain, particularly in the
bigger stores, where there is a full-time cashier on hand to help the man-
ager. It is worth investigating to establish the proper procedures for pre-
paring the payroll journals.
14. Study the advantages of leasing equipment, particularly equip-
ment that becomes obsolete fast, such as: air conditioners, sprinklers,
supervisors' cars, incinerators, tabulating machines, delivery equipment.
15. Have clerks keep a daily inventory check on standard items. It
will save the buyer's time.
Appendix A ^
16. Keep paperwork where it belongs— in the central office. It costs
less per hour there. Even weekly payrolls can be done more efficiently at
headquarters.
17. Turn out copies (up to 10,000) of reports, bulletins, etc., by
xerography. Equipment for this quick, inexpensive process is made up
of three pieces: camera, copier, and fuser. It cuts out second typing from
original copy to stencils and eliminates second proofreading.
18. Use newsprint or cheap wrapping paper in handling glassware,
rather than the much more expensive kraft paper bags.
19. Check to see whether your company should be paying local taxes
as a single corporate unit rather than as separate stores. You may be un-
der unnecessary assessment.
20. Set up a salvage department to make daily or weekly pickups of
waste and damaged goods from the stores. It's all good for resale.
21. Put up reminders to your checkers to look into the bottom shelf
of the shopping cart.
22. If your managers are paying cash for store-door deliveries, it may
be wise to relieve them of this burden. Over the month, the "cash pay-
outs" can amount to hundreds.
23. To cut public liability insurance costs, it may be wiser to pay
small claims yourself.
24. Use the "miscellaneous" key of your cash register to ring up tax
on registers that have no tax key.
25. Have all store managers submit ideas for cost control before go-
ing ahead on them. Cost controls can become big expenses in themselves,
especially if store managers start keeping detailed records without ask-
ing which ones the head office may require.
26. Stamp "paid by cash" clearly on the face of merchandise vouchers.
In that way, if the voucher is lost or stolen, no one will be able to redeem
it again.
27. Keep an alphabetical check list handy in each store of people
known to be phony-check passers.
28. Don't keep stock on odd-sized bags that you seldom use. Store
bag supplies in a place where they won't be damaged in any way.
Labor
29. Try using a job assignment card that outlines employees' duties
by days. In this way the employee gets definite assignments and does not
waste time each day waiting for his next assignment.
30. You can cut down on telephone expenses by following these rules:
Don't allow employees to send or receive calls during working hours
256 Appendix A
(emergency calls excepted); equip only one phone with a dial; use a
buzzer system for signaling; calls should be brief and to the point; install
pay phones; do not tie up office personnel with details that can be handled
by supervisors; check phone bills carefully.
31. Compute employee tax deductions in payroll work in a single tax
table combining FICA and withholdings. You can obtain combined with-
holding tables from companies that supply accountants.
32. Want to reduce costs of inventory taking? One company starts
inventory at 7 a.m. on a Monday morning, using regular store help on
a quarterly basis. An administrative staff member is sent in to help the
store crew. This gives both crew and administrators a better understand-
ing of the store problems and leads to new suggestions for improving op-
erations.
33. You can increase productivity in checking orders if, when using
two-man teams, the first half of the items on the invoice are placed on
one side of a four-wheel selector truck and the other half on the other
side.
34. Check unemployment compensation claims periodically. You may
be paying tax on dead claims.
35. List special prices alphabetically at the cash registers to help
checkers with sale merchandise.
36. Cut down on unnecessary phone calls by having a central place
for locating supervisors after the switchboard is closed. One company has
each supervisor give his schedule to one key store in his district.
37. Use guide pictures to help clerks stock departments in new mar-
kets. Place photos of segments of top departments in other stores on
shelves where you want the merchandise. Then send sufficient opening
inventories to fill shelves. You'll save stocking time, layout time, and in-
ventory time.
38. Have the company nurse make spot checks at the homes of men
who are absent because of illness. Usually the man is really sick and will
appreciate a call from the nurse. If not, a friendly talk with his boss will
usually keep him from playing sick another time. Also, the calls will dis-
courage other employees from trying the same ruse. If your company has
no regular nurse, you can have your personnel office check with em-
ployees' doctors.
39. Check time cards regularly for employees who are late three or
more times in a month. Have supervisors talk over with these men ways in
which they can avoid being late.
40. Check previous employment records of all job applicants before
you hire them, to make sure they are trustworthy. Some companies em-
Appendix A ^*
ploy an investigation service to check prospective cashiers, managers, and
others who will be handling large amounts of money.
41. When you fire an employee, keep a record in your central per-
sonnel office of your reasons for firing and of his social security number.
Check this list whenever you hire a new man. This is particularly impor-
tant where store managers hire their own personnel. A man who has been
fired from one of your stores for dishonesty may look for work in another
store in your chain.
42. Careful records of reasons for separating employees can lower
your payments for unemployment compensation in many states. The
amount you have to pay to the state for unemployment compensation
usually is determined by the number of valid claims filed by former em-
ployees of yours. Thus, if you can show that you fired employees for rea-
sons which were their own fault, such as dishonesty, your unemployment
compensation payments will be lower. Many employers issue written
warnings to workers and have the workers initial them, before they fire
them. Then if you have to fire the workers, the warnings prove that you
did so for good and just cause.
43. Punch employees' time cards each time you issue laundry to
them, to make sure they return it. Issue laundry according to a regular
schedule — so many fresh uniforms, aprons, towels, etc., for each classifica-
tion of worker per week. Check all laundry against delivery sheets before
the driver arrives.
44. To cut down on accidents, have store managers or department
heads fill out an accident report each time a mishap occurs. In addition
to having them fill in details of the accident, have them tell how the ac-
cident could have been prevented and what has been done to keep it from
happening again.
45. Kroger appoints an employee in each store to serve as "Safety
Promoter" for one or two months. Working under direction of the store
manager, the "Safety Promoter" inspects the store and its equipment daily
to remove safety hazards. At the end of his tour of duty, the job passes
to another employee. Albers uses a similar system. A "Mr. Super Safety"
or "Miss Super Safety" reports daily to the manager on safety conditions
in each store.
46. Schedule part-time help only when and where it's really needed.
Don't have part-timers standing around with time on their hands in off
hours.
47. Set up a system of department numbers on pay checks so that
checks for each department can easily be told apart from the others.
48. An easy way to eliminate extra help and overtime problems in
258 Appendix A
stocking new markets is this technique: Soon after the market has had its
floors and shelving installed, and electricians, carpenters, and decorators
are finished with their work, set your stocking crews to work. Let them
work from master plans, filling in first one front-faced row of items and
later depositing the balance on each line. As a gondola or section of
shelving is completely stocked, huge sheets of clear plastic are draped
over it to seal it off from the dust and dirt resulting from unfinished work.
When the store is ready for opening, the covers are removed to reveal
gleaming, dust-free stocks.
Warehousing and Transportation
49. For additional security measures, use seals on trucks making
grocery deliveries to stores.
50. Unload and tally in small units when you check warehouse de-
liveries into the store. That way, if a difference shows up between the
store receiver's count and the truck driver's billing count, you won't have
to retally the whole load to find where the trouble is. Here's how to do it:
Unload in lots, say, of 20 pieces. Mark the twentieth piece. Enter a "20"
on your tally sheet. Any difference in count will show up immediately
within the group of 20 pieces and can be cleared up in a few minutes.
51. When you order carload shipments from suppliers, specify the
track over which it should be shipped to reach your spur of the railway.
This will eliminate possible delays through misrouting. Some companies
have a special warehouse assistant to study rail and trucking tariffs and
routings.
52. An electronic scale in the dispatcher's office to register axle loads
of outgoing trucks can save on traffic fines. If the axle load exceeds legal
limits, the dispatcher can head off the truck and direct it to a dock for
unloading before it gets out on the road.
53. To cut paper work in warehouse receiving, install a tape recorder
in your warehouse tabulating office with a microphone at the receiving
dock. As merchandise arrives, a clerk dictates receiving into the micro-
phone. Another clerk in the tabulating department transcribes the receiv-
ings from the tape recorder. If the receiving dock and tabulating office
are too far apart for a direct cable connection, a telephone with a special
attachment may be used for dictating into the tape recorder. Transcribing
the receivings on continuous forms further speeds the operation.
54. Some warehouses install two-way radios on lift trucks to maintain
constant contact with the warehouse office. The radios eliminate a lot
of delay and wear and tear on warehouse supervisors.
55. Have delivery truck drivers phone the warehouse dispatcher's
Appendix A 259
office from the gate for instructions on where to deliver their load. This
system helps avoid delivery delays and traffic snarls.
56. To head off misrouting of orders going to different offices, use
different-color mailing envelopes for each order destination.
57. Hold on to the cardboard cartons in which warehouse merchan-
dise comes to the store. Then send them back for use a second time.
58. In warehouse orders, list items in any given line of goods in the
same sequence as they turn up in the orders left by the service salesman.
59. Send pallets to local distributors who do not already use them.
And encourage them to send palletized deliveries to your warehouse. If
you sell the pallets at or near cost, your savings in warehouse efficiency
will make up any loss many times over.
60. Price-mark as much of your merchandise as you can in the ware-
house. This saves the time it takes for clerks in the stores to look up
prices. It is recommended particularly for nonfoods.
61. Carry portable conveyors under trailers of your trucks. This
avoids the necessity of having a complete conveyor system in small stores.
62. Use nets to separate orders for individual stores in your delivery
trucks. They allow better use of space than rigid dividers.
63. Use hub mileage meters on trailers of delivery trucks. Tractors
and trailers seldom travel the same distances, so you need separate mile-
age meters to tell you when the trailers should be serviced.
° 64. One chain has a store unloading system that cuts down time of
unloading each truck from a half-hour to 5 minutes. The company's new
markets are coming equipped with compartments exactly matching in size
the standard 35-ft trailer. The compartments are tilted slightly, and the
trailer backs into its "twin" compartment. Gravity pulls its merchandise
down the slope on conveyor belts and pallets.
65. In warehouse receiving you can get increased labor productivity
by separating the palletizing operation from the storing operation. By
doing this and by providing the palletizing crew with pallet jacks, four-
wheel trucks, or skids, you can reduce the number of men on the job by
one-third.
66. One man working alone in palletizing groceries and moving the
loaded pallet out of the car is nearly 38 per cent more productive per
man-hour than a two-man team. You can gain economies by one man,
providing you leave the car in the dock long enough and the one man
does not have to unload extremely heavy merchandise.
260 Appendix A
Construction and Maintenance
67. Laundry bills can be cut down by following these procedures: As-
sign a responsible employee to head up laundry handling in the markets.
Have employees sign a record form every time a uniform is issued. Have
employees use partly soiled coats for messy work and change to clean uni-
forms once the work is completed.
68. To cut utility expenses, assign one person to oil all motors, as
specified by the manufacturer; keep motors clean and drive belts tight;
replace used bulbs; turn off lights when not in use; check filters in air
conditioners and replace or clean when necessary; check burners in the
heating units to see that they are firing properly; check water lines and
water heaters against leaks.
69. Investigate whether or not capacitators can be installed as a means
of cutting power cost, despite their rather high initial cost.
70. To protect shopping carts against breakdowns, observe the follow-
ing rules: Don't use shopping carts in place of heavy-duty trucks. Don't
use shopping carts for carry-out service. Make sure that the carts are
properly maintained. For special jobs use special equipment.
71. Put in a clock thermostat control if you have air conditioning. It
will shut the units off when your stores are not open.
72. Put up prominent notices in all stores, telling your employees not
to throw water on fires starting in electrical equipment.
73. Post a notice near your garbage disposal machine, telling what
should not be thrown in.
74. Channel all orders for equipment servicing through central pur-
chasing at headquarters. These people have the service contacts and can
get better prices than the store manager.
75. Check scales to see that they're properly calibrated. Make fre-
quent test weights. Each overage costs money; each underweight can
cost you a paying customer.
76. Keep up-to-date telephone numbers of your company's mainte-
nance office or service firm posted conveniently. This keeps store per-
sonnel from putting off a maintenance call.
77. One way to keep down shopping cart losses is to point out what
each one costs. Most shoppers value the carts at less than $5.00 each and
are amazed to learn that they cost up to $50. They think twice before
inadvertently stealing something that expensive. You can offer to sell
carts to customers; put a price tag on them.
78. Cost-saving construction technique: Concrete wall panels are pre-
cast on the floor of the warehouse and tilted up into place by a crane.
Appendix A 261
Then reinforced concrete columns are poured between the wall panels.
79. Flexible plastic strips along the hinged edge of doors prevent
crushed kiddies' fingers, which could mean expensive damage suits against
you.
80. Establish a regular schedule for using a light meter to check in-
tensity of light from the lamps in your stores, and for cleaning and re-
placing lamps.
81. Attach pull cords to light bulbs so that it won't be necessary to
throw the main switch in order to turn off lights in individual areas of
the store.
82. Throughout the day make frequent temperature checks on re-
frigeration equipment. Catch any defects before they get a chance to pile
up spoiled goods. Know the defrost cycles of each piece of machinery,
so that your temperature report will be a valid one. Make sure com-
pressors are kept clean. Dirt makes extra wattage necessary.
83. Put up a complete diagram of the plumbing and electrical layout
in each store, with "X marks the spot" indications for all the sewer clean-
outs and fuse boxes.
84. A stainless steel moulding on each side of the gasket on walk-in
freezer doors in stores will keep the gasket from pulling loose.
85. Make scale models of new stores before the real thing goes into
the works. This way you can avoid "hindsight blues" over layout.
Store Departments
86. To handle quarters of beef you will save considerable labor time
if you cut into wholesale pieces, trim, and then put into the cooler. That
is faster than putting them into the cooler in quarters and then cutting
them into wholesale cuts later.
87. When handling cartons of meat, cut the tops off, place in cooler,
and work from the cartons. That proves at least 70 per cent faster than
unpacking the cartons and hanging or shelving them in the cooler.
88. Decide what specific sizes of cellophane or other wraps you need,
and keep only those sizes on hand. Where you can use second-quality
paper instead of first (cheese, for example), do so. Cut down on overlap
in sealing packages.
89. Use silver polish instead of steel wool to take price markings off
cellophane-wrapped items in meat and delicatessen departments. It won't
tear the wrapping.
90. Cut down on power-saw accidents by putting decals on the saws
reading, "Turn off main switch before opening."
91. To avoid duplicate payment and to get greater efficiency in trans-
262 Appendix A
shipment, print and staple labels to crates of produce from local farmers.
92. In filling produce racks, two hands are better than one. The
USDA estimates that 4 to 5 man-hours weekly can be saved if an em-
ployee takes items in both hands and places them simultaneously on the
display. In a test, the two-handed technique reduced display filling time
by as much as 14 to 38 per cent.
93. To cut unloading time, use a production-line setup in your back
room. One man calls off items as they arrive, while a second checks them
with the order sheet. The third man splits the case, and the fourth opens
it on the conveyor, exposing tops of two layers of merchandise containers.
Two more men stamp prices, and the goods are ready for the store
shelves.
94. File special display signs under item headings and use them again
when these items come up for another special; this saves you the cost
of printing new signs each time.
95. Carton openers have a tendency to disappear like rabbits. You
can cut down on carton-opener losses by selling them to clerks at whole-
sale prices.
96. Keep weekly records of produce "throw-outs" by items or pound-
age, or both. With a comparison record of waste to sales, you can correct
your ordering.
97. You can facilitate deliveries on sale items by splitting them up —
half in the week before the actual sale and half during the sale time.
98. Check your use of boards and trays and cellophane in meat-
packaging departments. By using materials just 1 inch less in width, you
can save.
99. Instruct meat department heads to inspect and weigh all prod-
ucts carefully upon receiving. You can cut down on short weights and
poor quality this way.
100. Place elastic bands around chicken parts and fresh-cut whole
birds before packaging to keep loose parts from tearing the wrapper.
101. Tie beef rib roasts and all kinds of rolled roasts with butcher's
twine before wrapping, to prevent damage to the package from inside.
102. Place the sharp, bony side of pork loin roasts against the card-
board in the package, and use rubber bands around the outside to safe-
guard against tearing.
Back Room
103. Assign one man to the back room and do not allow him to leave
this room unless someone replaces him.
104. Do not permit anybody to take anything out of the store through
Appendix A 263
the back door without a signed transfer or charge note, to be checked by
the person assigned to the back room.
105. Do not permit a delivery man to take anything into the front of
the store without permission of the back-room man. No boxes, bags, or
other containers should leave the store without being checked thoroughly.
106. Give strict warning, just once, to any delivery man who is found
to have taken something through the back door without first being
checked. If there are any further violations, ask that another man take
over his route.
107. Do not permit employees to take anything out of the store unless
they go through the check-out stands. Never permit them to leave by the
back entrance. See to it that all their purchases are paid for at the time
they leave the store and never before.
108. Make frequent checks to see that back doors are locked.
109. Set a fixed time for deliveries, except in case of emergency. After
the set time for deliveries, the manager should collect all keys to the
back room and should not permit anyone to open these doors without his
consent.
110. Check delivery man, particularly when he collects the empty
bottles.
111. Lock in night stockers and cleaning crews for your stores.
112. Locate your receiving office for all merchandise in the back room.
113. Make it your store policy to limit access to the back room to
authorized personnel only.
114. Keep a running record of ' 'ins and outs." Check this record peri-
odically by physical inventory.
115. If you have an outside service for protection against pilferage,
extend it to surveillance of back-room operation.
116. Do not permit any open cases or damaged merchandise to be
stored in the back room.
117. Do not permit employees to change clothes in the warehouse or
back room, but see to it that they go to the employees' locker room.
118. When you notice that back-room losses are getting excessively
large, hold a staff meeting and direct the attention of personnel to the
fact that if the losses are traced to pilferage, they will come under the
heading of stealing — with corresponding punishment.
119. Put two separate locks on the back-room door: one a daytime
lock, and one a nighttime lock.
BIBLIOGRAPHY
The author owes a debt of gratitude to the editors, contributors, and
staff writers of the magazines Super Market Merchandising, Progressive
Grocer, and Chain Store Age, Grocery Executive and Supermarket Edi-
tions. Articles that appeared in these publications over the years have
traced the creative thinking of the leaders of this industry. The yearly re-
ports over the past decade of the Super Market Institute, The Super
Market Industry Speaks, and of the Progressive Grocer, Facts in Grocery
Distribution, also were of value. Statistics issued by the Topics Publishing
Company in What the Public Spends for Grocery Store Products were
essential in the analysis.
An alphabetized list of all sources of information used in this text is
given below. Inasmuch as the footnotes were given in detail, only the
names and publishers of the various periodicals are submitted here.
Advertising Agency, Moore Publishing Co., Inc., 48 W. 38th St., New
York 18, N. Y.
Applebaum, William, and Moulton, Richard. An Exploration into Reasons
Why Supermarkets Add and Discontinue Items. New York: McCall
Corp., 1956.
Baking Industry. Clissold Publishing Co., 105 W. Adams St., Chicago 3,
111.
Barker, Clare W., Anderson, Ira D., Butterworth, J. Donald. Principles
of Retailing. New York: McGraw-Hill Book Co., Inc., 1956.
Barron's, Barron's Publishing Co., 50 Broadway, New York 4, N. Y.
Beckman, Theodore, and Nolen, H. C. The Chain Store Problem. New
York: McGraw-Hill Book Co., Inc., 1938.
Boyd, Harper W., and Westfall, Ralph. Marketing Research. Homewood,
Illinois: Richard D. Irwin, Inc., 1956.
Bureau of Agricultural Economics, U.S. Department of Agriculture, Con-
sumption of Food in the U.S., Agriculture Handbook No. 62, Gov-
ernment Printing Office, Washington, D.C., October, 1955.
Business Week. McGraw-Hill Publishing Co., Inc., 330 W. 42 St., New
York 36, N. Y.
Chain Store Age, Grocery Executive Edition, Lebhar-Friedman Publi-
cations, Inc., 2 Park Ave., New York 16, N. Y.
Controllers Congress. 1954 Merchandise and Operating Results. New
York: National Retail Dry Goods Association, 1955.
Converse, Paul D., and Huegy, Harvey W. The Elements of Marketing.
New York: Prentice-Hall, Inc., 1956.
265
266 Bibliography
Cooperative Merchandiser, Cooperative Food Distributors of America,
141 W. Jackson Blvd., Chicago 4, 111.
Donohue, Al. An address given by this executive of Kidder Peabody and
Company at the 20th Annual Meeting of the National Association of
Food Chains in Washington, D.C., on December 5, 1953.
Edison Electric Institute, Edison Electric Institute, 750 Third Ave., New
York 17, N. Y.
Electrical Merchandising, McGraw-Hill Publishing Co., Inc., 330 W. 42
St., New York 36, N. Y.
England, Wilbur B. Operating Results of Food Chains in 1958. Cam-
bridge: Harvard Business School, Bulletin No. 156, 1959.
Facts in Grocery Distribution. New York: Progressive Grocer, 1950 to
1959.
Federal Trade Commission. Chain Stores, Final Report on the Chain Store
Investigation, submitted to 74th Congress, 1st session. Senate Docu-
ment 4. Government Printing Office, Washington, D.C., Dec. 14,
1934.
Federal Trade Commission. Federal Trade Commission Economic Inquiry
into Food Marketing — Interim Report, Government Printing Office,
Washington, D.C., June 30, 1959.
Food Business, Putman Publishing Co., Ill E. Delaware PL, Chicago 11,
111.
Food Field Reporter, Topics Publishing Co., 708 Third Ave., New York
17, N. Y.
Food Mart News, 333 N. Michigan Ave., Chicago 1, 111.
Food Topics, Food Publications, Inc., 708 Third Ave., New York 17, N. Y.
Forbes, Forbes, Inc., 70 Fifth Ave., New York 11, N. Y.
Fortune, Time, Inc., 9 Rockefeller Plaza, New York 20, N. Y.
Frozen Food Industry. Philadelphia: Curtis Publishing Co., 1954.
Goodwin, Arthur E. Markets Public and Private. Seattle: Montgomery
Printing Co., 1939.
Graham, Benjamin, and Dodd, David. Security Analysis. New York:
McGraw-Hill Book Co., Inc., 1953.
Grimes, Don R. An interview with the assistant to the president, IGA,
on July 10, 1957 at Chicago, 111.
Guthmann, Harry G., and Dougall, Herbert E. Corporate Financial Pol-
icy. New York: Prentice-Hall, Inc., 1955.
Bibliography 267
Hardware Retailer, National Retail Hardware Association, 964 N. Pennsyl-
vania Ave., Indianapolis 4, Ind.
Haring, Albert, and Yoder, Wallace O. Trading Stamp Practice and Pric-
ing Policy. Bloomington: Indiana University, 1958.
Harvard Business Review, Soldiers' Field, Boston 63, Mass.
Hayward, Walter, and White, Percival. Cliain Stores. New York: Mc-
Graw-Hill Book Co., Inc., 1922.
Here's How We Shop for Our Big Grocery Order. New York: Batten,
Barton, Durstine & Osborne, 1949.
Home Testing Institute, Inc., McCall's Food and Grocery Products Pur-
chase Diary Study. New York: McCall Corp., 1956.
1GA Grocergram, Independent Grocers' Alliance of America, 131 S.
Wabash Ave., Chicago 3, 111.
International Super Marketing, Red and White Corp., 300 W. Washing-
ton St., Chicago 6, 111.
Journal of Marketing, Marketing Association, 27 E. Monroe St., Chicago
3,111.
Journal of Retailing, New York University School of Retailing, Washing-
ton Square, New York 3, N. Y.
Kintner, Earl W. Testimony given by the chairman of the Federal Trade
Commission before a Subcommittee of the Select Committee on
Small Business, United States Senate, 86th Congress, 1st session,
July 2, 1959. These hearings are published as Mergers and Unfair
Competition in Food Marketing, Government Printing Office, Wash-
ington, D.C., 1960.
Kleppner, Otto. Advertising Procedure. Englewood Cliffs, N. J.: Prentice-
Hall, Inc., 1950.
Kohler, Eric. Dictionary for Accountants. New York: Prentice-Hall, Inc.,
1952.
Kornblau, Curt. An address, "Facts about New Supers Opened in 1957,"
given by the Director of Research, Super Market Institute, at the an-
nual convention in Cleveland, Ohio, in May, 1958.
Kornblau, Curt. Facts and Figures About Non-Foods in Super Markets.
Chicago: Super Market Institute, 1959.
Kuznets, Simon. Shares of Upper Income Groups in Income and Savings.
New York: National Bureau of Economic Research, Inc., 1953.
Lilly Digest, Eli Lilly and Company, Indianapolis, Ind., 1955.
Logan, John A. Progress in Food Distribution. Washington: National As-
sociation of Food Chains, 1957.
268 Bibliography
Market of the Sixties. New York: Time, Inc., 1960.
Mattei, G. L. A letter written by the district manager, William J. Burns
International Detective Agency, to the Super Market Institute on
January 22, 1958.
Maynard, Harold, and Beckman, Theodore. Principles of Marketing. New
York: The Ronald Press Co., 1952.
McNamara, Harley V. An address, "Modern Trends in Food Retailing,"
given by the President of National Tea Company before the Chi-
cago Federated Advertising Club on October 12, 1952.
Meat and Dairy Products, Standard and Poors Industry Surveys, 1959.
New York: Standard and Poor's Corp.
Meat Markets — Operating Results in 1954. New York: Dun & Bradstreet,
Inc., 1954.
Merger Movement in Retail Food Distribution. Chicago: National Asso-
ciation of Retail Grocers, 1959.
Moody's Industrial Manual. New York: Moody's Investor Service.
Myers, Herman L., and Scott, Forrest. The Rise of the Super Market.
U.S. Department of Agriculture, Bureau of Agricultural Economics,
MTS-103. Government Printing Office, Washington, D.C., Decem-
ber, 1951.
McCloskey, Joseph, and Trefethen, Florence. Operations Research for
Management. Baltimore: The Johns Hopkins Press, 1954.
McNair, Malcolm P. Expenses and Profits in the Chain Grocery Business.
Cambridge: Harvard Business School, Bureau of Business Research,
1931.
Nargus Bulletin, National Association of Retail Grocers, 360 N. Michigan
Ave., Chicago 1, 111.
Nielsen Researcher, A. C. Nielsen Company, 2101 Howard St., Chicago,
111.
1954 Furniture Operating Experiences. Chicago: National Retail Furni-
ture Association, 1955.
1954 Operating Statistics. New York: American National Retail Jewelers
Association, 1955.
1958 Survey of Super Market Shoppers, Their Buying Habits and Atti-
tudes. Cincinnati: Burgoyne Grocery and Drug Index, Inc., 1959.
Nugent, William C. An address given November 12, 1957, to the Grocery
Manufacturers of America, Inc., at New York, N. Y.
Nugent, William C. An address presented at the United States Whole-
sale Grocers' Convention, April 21, 1957, St. Louis, Mo.
Nystrom, Paul H. Economics of Retailing. New York: The Ronald Press
Co., 1936.
Bibliography 269
Nystrom, Paul H. Retail Store Operation. New York: The Ronald Press
Co., 1937.
Peckham, J. O. Planning Your Marketing Operations for 1959. Chicago:
A. C. Nielsen Company, 1959.
Phillips, Charles F., and Duncan, Delbert J. Marketing Principles and
Methods. Homewood, Illinois: Richard D. Irwin, 1956.
Printers Ink, Printers' Ink Publishing Co., 205 E. 42nd St., New York 17,
N. Y.
Progressive Grocer, Butterick Co., Inc., 161 Sixth Ave., New York 13,
N. Y.
Sales Management, Sales Management, Inc., 386 Fourth Ave., New York
16, N. Y.
Shaffer, Henry. An address, "Essential Factors in Sound Financing," given
by this executive of Shaffer Stores Co., at the 20th Annual Meeting
of Food Chains in Washington, D.C., on December 5, 1953.
Standard Ratios for Retailing. New York: Dun & Bradstreet, Inc., 1936.
Super Market Industry Speaks. Chicago: Super Market Institute, 1949 to
1959.
Super Market Merchandising. Super Market Publishing Co., Inc., 67 W.
44th St., New York 36, N. Y.
Super Market News, Fairchild Publications, Inc., 7 E. 12th St., New
York 3, N. Y.
Supermarket News Food Industries Financial Manual. New York: Fair-
child Publications, Inc., 1957.
Super Markets in the United States. Philadelphia: Curtis Publishing Co.,
1954.
Tarrant, Christ. An interview with the secretary, Grocerland Co-operative,
Inc., in Chicago, Illinois, on June 20, 1957.
U.S. Bureau of the Census, Census of Business, 1954, Bulletin R-2-2, Gov-
ernment Printing Office, Washington, D.C., 1957.
U.S. Bureau of the Census, 1951 Supplement, Survey of Current Business,
Government Printing Office, Washington, D.C., 1959.
U.S. Bureau of the Census, Census of Business, Retail Distribution, Part
I., vol. 1, Government Printing Office, Washington, D.C., 1933.
U.S. Bureau of the Census, Census of Business, Retail Trade, Parts I and
II, vols. 1 and 2, Government Printing Office, Washington, D. C,
1952.
U.S. Bureau of the Census, Census of Business, Retail Trade, No. R-2-2,
Government Printing Office, Washington, D.C., 1957.
270 Bibliography
U.S. Bureau of the Census, Census of Business, Selected Service Trades,
Government Printing Office, Washington, D.C., 1957.
U.S. Bureau of the Census, Census of Business, Retail Trade Summary
Statistics, vol. 1, Government Printing Office, Washington, D.C.,
1957.
U.S. Bureau of the Census, Current Population Reports, Government
Printing Office, Washington, D.C., 1958.
U.S. Bureau of the Census, Food Retailing — Retail Distribution, M-93,
Government Printing Office, Washington, D.C., 1934.
U.S. Bureau of the Census, Number of Inhabitants, U.S. Summary 1950
Census of Population, Government Printing Office, Washington,
D.C., 1952.
U.S. Bureau of the Census, Sixteenth Census of the U.S., 1940 Popula-
tion, vol. 1, Government Printing Office, Washington, D.C., 1942.
U.S. Bureau of the Census, Statistical Abstract of the United States, Gov-
ernment Printing Office, Washington, D.C., 1959.
U.S. Bureau of Labor Statistics, Monthly Labor Review, Government
Printing Office, Washington, D.C., 1933.
U.S. Department of Commerce, Confectionery Sales and Distribution.
Government Printing Office, Washington, D.C., 1957.
U.S. Department of Commerce, Distribution Cost Studies Number 1,
Louisville Grocery Survey, Part HIA, Government Printing Office,
Washington, D.C., 1932.
United States v. The Great A & P Tea Company. U.S. Circuit Court of
Appeals, 7th district, Docket 9221, Records & Briefs, vols. I and II.
Variety Store Merchandiser, Variety Store Merchandiser Publications,
419 Fourth Ave, New York 16, N. Y.
Voluntary and Cooperative Groups Magazine, Cook Publications, 114 E.
32 St., New York 16, N. Y.
What the Public Spends for Grocery Store Products. New York: Food
Topics Publishing Co., 1950 to 1959.
Weiss, E. B. Winning Chain Store Distribution for New Products. New
York: Doyle, Dane, Bernbach, Inc., 1956.
Zimmerman, M. M. The Super Market. New York: McGraw-Hill Book
Co, Inc., 1955.
Zimmerman, M. M. Super Market — Its Growth and Future. New York:
Super Market Merchandising Publishing Co, 1948.
Zimmerman, M. M. Super Market Spectacular Exponent of Mass Distri-
bution. New York: Super Market Publishing Co, 1937.
INDEX
A & P {see Great Atlantic & Pacific
Tea Co. )
ABC Stores, Inc., 17
ACF-Brill Motors Co. {see ACF-Wrig-
ley Stores, Inc. )
ACF-Wrigley Stores, Inc., 29, 181
Administration expense, 102, 103, 110,
111
Advertising, cooperative, 106
expenditures, 65-66, 105, 106, 111
media, 105
Albers Supermarkets, Inc., 158, 162,
163, 168, 180
Alexander, Milton, 49, 69, 92, 214
Alpha Beta Food Markets, 15
Alt, Richard N., 49, 196
American House Grocers, 18
American Stores Co., integration, 179,
180
operating statistics, 25, 70, 91, 150,
159, 172, 173, 174
Anderson, Ira D., 62
Ann Page, 171, 184
Applebaum, William, 26, 57, 63, 79
Armour & Co., 172
Ashton's Supermarket, 180
Automobile, impact, 35, 37-38
registrations, 38
Back room expense, 116, 117
Bakery product stores, number, 189
position, 197-198, 209-211
sales, 192, 199, 200
Balance sheet, 123-125, 132, 146
Bank loans, 139-140
Barker, Clare W., 62
Bayless, A. J. Markets, Inc., 69, 70,
90, 91, 118, 150
Beckman, Theodore N., 68, 158
Beem, Eugene, 68
Big Bear, 18-21, 23-25, 121, 123,
154-155
Big Bear Markets of Michigan, Inc.,
181, 182
Big business, 28-29, 225-228
Birdseye, Clarence, 40
Bohack, H. C, 213
Boyd, Harper W., 232
Brand policy, chain, 84, 184, 239
packer, 84
private, 84, 184
Breakeven analysis, 145-147
Brevit, S. L., 16, 154
Brown, A. A., 38
Budget Markets, Inc., 180
Budgeting procedure, 113
Buildings, 122-125, 128-130
Bunnell, Charles N., 17
Butterworth, J. Donald, 62
Buying, associations, 85-87
committee, 78-83
decisions to make or buy, 83-84
new products, 77-78
routine, 76-77
Capital Stores, Inc., 180
Cardinal Stores, Inc., 181
Carl's Markets, Inc., 180
Carney, Robert, 230
Carrolls', Ltd. Stores, 180
Carry Brothers, 15
Catherine Market, 12
Century Food Markets Co., 70, 91, 150
Chain Store Age, 72
Chapman Park Drive-in Market, 16
Charvat, Frank J., 41
Chattel mortgages, 142-143
Cheapy supermarket, appeal, 31, 37,
45, 57, 222
operating statistics, 23-24
271
272
Cheapy supermarket (Cont.):
opposition, 154-159
origin, 11, 18-25
Clayton Act, 181, 227
Clovis, L. L., 195
Colonial Stores, Inc., integration, 173,
179, 180
operating statistics, 70, 90, 91, 127,
149, 150
Combination markets, number, 189-
191
position, 195-197, 203-206, 208-
212
sales, 191-193, 199-202
Cornish, Newel, 58
Community relations, 251-252
Competition, among supermarkets,
224-225
intertype, 195-197
Concession-type markets, 12-15
Confectionery stores, number, 189
position, 207-209
sales, 192, 199, 200
Consent Decree of 1920, 171, 172
Consigned merchandise, 87-88
Construction & maintenance cost, 116,
117
Consumer buying habits, 46-50
Converse, Paul D., 169-195
Cost of sales, 75-88
Cost reduction, 116-117, 253-263
Costs ( see Operating expense )
Council Oak Stores, 180
Country general store, number, 189-
190
position, 193-195, 205, 210
sales, 192
Crawford, R. P., 14
Crystal Palace Market, 12-13
Cudahy Packing Co., 172
Cullen, Michael {see Kullen, King)
Current assets, 125-127
Daitch Crystal Dairies, Inc., 69, 70,
91, 127, 150
Dale Supermarkets, 180
Davidson, William R., 68
Dawson, Roy O., 18, 121
Debentures, 140-142
Decentralization movement, 43-46
Decision making, 229-232
Index
Delicatessen stores, 189, 192
Department of Justice, 184, 187
Devan's Food Stores, 180
Dipman, Carl W., 19, 25, 28, 45
Display techniques, 60-61, 240
Distribution, costs, 108, 111-112,
117
cycle, 246-247
Dixie Home Stores {see Winn-Dixie
Stores, Inc. )
Dodd, David L., 141
Dollenger, Emil, 13
Dolly Madison International Foods,
Ltd., 181
Donohue, Al, 126, 144
Dougall, Herbert E., 149
Drive-in markets, 15-16
Dun & Bradstreet, Inc., 26
Duncan, Delbert J., 194
Durrant, B. A., 195
Eagle-United Supermarkets, 129
Eavey's Supermarket, 63
Edins Food Stores, 181
Eisner Grocery Co., 180
England, Wilbur B., 55, 69, 110, 111,
137
Equipment, costs, 55
lease, 137
requirements, 122, 123, 124, 127-
128
Equity capital {see Ownership capi-
tal)
Euclid and 46th Street Market, 12
Evans Grocery Co., 141, 142
Executive development, 241-243
Expense, budgeting, 112-114
comparison other retailers, 101-107
control, 112-117
fixed, 115, 145-147, 236-237
functional, 107-112
individual concern, 91
major items, 102-104
reduction, 116-117
relationships, 236-237
standards, 114-115
trends, 99-101
Faneuil Hall Market, 12
Federal Trade Commission, chain store
report, 21, 23
Index
273
Federal Trade Commission (Cont.)
economic inquiry, 171, 174, 176,
177, 179, 183, 186, 187
enforcement, 179, 181, 227
Federated Department Stores, Inc.,
62
Financing, borrowing, 137-144
equity, 144
growth, 243-245
leasing, 131-133, 135-137
First National Stores, Inc., 25, 159, 173
Fisher Brothers Co., 70, 91, 127, 141,
150
Flint, Lucius, 15
Food Center Stores, 180
Food Center Supermarkets, 180
Food Fair Stores, Inc., financing, 121,
128, 142
integration, 168, 172, 173, 179, 180,
182
operating statistics, 70, 90, 91, 121,
150
Food Mart, Inc., 70, 91, 150
Food Topics, 64
Food stores, number, 188-191, 193-
198
sales, 191-198
Foodtown Stores, Inc., 181
Food Town study, 92, 200
Foster, H. M., 16, 153, 155, 157
Fruit & vegetable stores, number, 189
position, 204-206
sales, 192, 199-200
Furr's, 128
General & overhead expense, 109, 110,
111, 116, 117
General Foods Corp., 40
Gibson, Edwin T., 40
Gilman, John R., 49, 61, 73, 101
Good will, 130, 249-252
Goodwin, Arthur E., 12
Graham, Benjamin, 141
Grand Union Co., Inc., integration,
173, 178, 179, 180, 228
operating statistics, 70, 91, 150
Great Atlantic & Pacific Tea Co., in-
tegration, 83, 168, 171, 172,
173, 176, 177, 178, 179, 184,
187, 227
nonfoods, 88
Great Atlantic & Pacific Tea Co.
( Cont. ) :
operating statistics, 23, 27, 123, 159,
160, 173
supermarket movement, 23, 25-26,
90, 101, 158, 159-166, 167
Grimes, Don R., 86
Grocery stores, number, 189, 190
position, 205, 210, 212-213
sales, 192, 193, 199, 200
Gross margin, comparison, 93-95
improvement, 96-98
individual company, 91
product lines, 92, 95-96
specific products, 201-202
trends, 8&-93, 223
Growth, cycle, 223-225
deterrents, 246-249
financing, 243-245
Guthmann, Harry G., 149
Harb, Ray, 64
Haring, Albert, 67
Hartford, John A., 25, 160, 164
Harvard Business School Study of
Food Chains, 54, 69, 95, 108,
116, 119
Hayward, Walter, 14
Henke & Pillot, Inc., 17, 179
Hill, H. G. Stores, Inc., 181
Huegy, Harvey W., 169, 195
Humpty Dumpty Stores, 181
Illinois Valley Stores, 180
Indebtedness, 137-144, 149, 151
Independent Grocers Alliance of
America, 4, 86, 87
Intangible assets, 130
Integration, food chains, 172-185
horizontal, 169-172, 227
vertical, 169-172
with other retailers, 73, 227
Inventory, nonfoods (see Nonfood
products )
number of items, 68-69
selection, 69
turnover, 69-71, 134, 135
vs. real estate, 133-135
Ireland, William S., 60
274
Index
Jane Parker, 171, 184
Jewel Tea Co., Inc., 70, 76, 91, 150,
173, 179, 180
Jitney Jungle Stores, 181
Ketner-Milner Stores, Inc., 181
Kintner, Earl W., 183
Kleppner, Otto, 106
Kohler, Eric, 141
Kornblau, Curt, 130, 213, 215
Krambo Food Stores, Inc., 179
Kresge, S. S. Co., 62
Kroger Company
integration, 14, 173, 177, 178, 179,
184, 227
operating statistics, 70, 91, 150
supermarket movement, 25, 26, 158,
159,163
Kullen, King, 18-19, 21, 24, 25, 160
Kuznets, Simon, 33
Labor expense (see Payroll)
Lakewood Center, 45
Land, 122, 123, 124, 125, 123-130
Larrabee, C. B., 17, 20, 154
Lease
equipment, 137
fixed assets, 131-137
new locations, 135-137
vs. owning buildings, 132-133
Leaseback method, 136
Leasehold improvements, 130-131
Lebhar, Godfrey, 197
Lebow, Victor, 57, 58
Lexington Market, 12
Life, 50
Limited-line food store, 195-198
Lincoln Village, 44
Loblaw Groceterias Co., Ltd., 180
Loblaw, Inc., 180, 181
Location of supermarkets, 63—65
Logan, John A., 122, 129
Logan's Supermarkets, 180
Long-term indebtedness, 140-144
Los Angeles supermarkets, 11, 15-17,
153-154
Louisville Grocery Survey, 22
Lucky Stores, Inc., 70, 91, 150, 179,
181
Maker's Food Chain, 180
Mann, Everett, 145
Manufacturing and processing tech-
niques, 35, 40-41
Marcus, Meyer, 121, 128
Margins (see Gross margin)
Market Basket, Inc., integration, 182
operating statistics, 70, 90, 91, 149,
150
Market Basket Corp. (New York),
180
Market of the Sixties, 50-52
Market stores, 11, 15-17
Marketing research, 232-234
Mattei, G. L., 97
Maynard, Harold H., 68
McCall's Food and Grocery Products
Diary Study, 48, 61, 63, 64
McCloskey, Joseph, 232
McNair, Malcolm P., 31, 69, 158, 195,
246
McNamara, Harley V., 122
Meat and seafood markets, number,
189, 190
position, 202-204
sales, 192, 199, 200
Merchandising, definition, 68
display, 60-61
new items, 77-78
nonfoods, 71-73
policies, 238-240
Montag's Supermarket Co., 180
Montgomery, Charlotte, 50
Moulton, Richard, 79
Mueller, Robert, 196
Myers, Herman L., 34
National Association of Food Chains,
122, 129
National Grocery Co., 73
National Recovery Act, 166
National Retail Dry Goods Association,
108
National Tea Co., building, 129
costs, 122
integration, 29, 178, 179, 180, 181,
227
sales, 173
New products, 77-83
Nolen, H. C, 158
Index
Nonfood products, impact, 216-219
policies, 238-239
purchases, 71-74
sales, 213-219-
saturation, 248
Northwest Piggly Wiggly Co., 180
Notes payable, 140-141
Nugent, William C, 78, 79, 82
Nystrom, Paul H., 12, 166
Occupancy, 102, 103, 105
One-stop shopping, 46-49
Operating expenses ( see Expenses )
Operating statements, 55, 56, 100, 124
Operations research, 232, 233, 234
Organization of supermarkets, 228-
229
Otis, Robert M., 18, 121
Ownership capital, 144, 146
Parsons, Don, 61
Payroll, 55, 56, 102-104, 111, 116
Personnel, 103, 109, 241-243
Phillips, Charles F., 21, 22, 25, 30,
89,194
Piggly Wiggly Stores, 11, 13-15, 29,
158, 180
Pike Place Market, 12
Population impact on supermarket,
41-43
Price, appeal, 57-58
policies, 58-60
Printers' Ink, 153
Profit, comparison, 119-120
Great Atlantic & Pacific Tea Co.,
166
individual company, 91
on net worth, 133, 145-148
on total assets, 133
related to volume, fixed expense,
and promotion, 230-237
trends, 117-119
Progressive Grocer, 67, 96, 107, 108,
168, 208
Promotion, 65-68, 105, 236-237
Purity Stores, Ltd., 70, 91, 150
Rack jobber, 72, 87, 88, 214, 215, 219
Ralph's Grocery Co., 15
Rapp, Fred, Inc., 181
275
Ratio analysis, 148-150, 123-125
Reading Terminal Market, 12
Real estate expenses, 55, 56, 103, 105,
109, 111
Real estate mortgages, 143-144
Red and White Corp., 4, 64, 86
Refrigeration, 35, 38-40
Rent expense (see Occupancy)
Rental-purchase plan, 137
Research, 232-236
Richland, Arthur H., 138
Robinson-Patman Act, 106, 166
Roosevelt Field center, 45
Rowaldt, M. J., 153
Safeway Stores, Inc., integration, 14,
,* 73, 173, 176, 177, 178, 179,
181, 184, 187
operating statistics, 70, 91, 150
supermarket movement, 158, 159
Salaries, 55, 56, 103-104, 109
Sales, food stores, 192-194
percentage store area, 123
policies, 57-74
supermarket, 3
Saunders, Clarence, 13, 14
Schmalz, Carl N., 23
Schwegmann Brothers, Inc., 62, 73,
90
Scott, Forrest, 34
Scrambled merchandising, 31, 46, 49,
196-197, 251
Self-service, 61-62, 104, 116, 242
Selling operations, 53-74
Serv-U-Meat Markets, 181
Shaffer, Henry, 138
Shaffer Stores Co., 70, 90, 91, 118,
138, 150
Sherman Anti-trust Act, 171
Shirley Food Stores, 180
Shopping Bag Food Stores, 70, 91,
101, 150
Shopping, centers, 43-45
facilities, 62-63
habits, 46-50
Short-term indebtedness, 139-140
Slater, Charles, 197, 209
Small Business Administration, 140
Smith, C. F. Stores Co., 180
Smith, H. A. Markets, Inc., 180
276
Smith, V. B., 43
Southwest markets, 17-18
Smith's, George T. Basket, Inc., 180
Standards, establishment, 114
measurement, 114-115
Stop and Shop, 180
Stop and Shop enterprise, 180
Store, expense, 109, 110, 111, 117
image, 249
operations, 107-112, 240-243
Straight-lease plan, 137
Subsidiary corporations, 136
Sunrise Supermarkets Corp., 70, 91,
150
Supermarket, decentralization, 45-46
definition, 6-7
development, 11-29
impact, Chapters 10 and 11
industry statistics, 3-6
location, 5-6, 62-65
operations {see functional areas
such as advertising, buying, and
selling )
Super Market Institute, 26-27, 80, 100,
104, 105, 108, 111, 114, 115,
119, 130, 214, 249
Super Market Merchandising, 27, 66,
90, 99, 108, 118
Super Valu study, 92, 200
Supplies, 55, 56, 100, 111
Swift and Co., 172
Tanner Stores, 180
Tarlin, Lloyd B., 113
Tarrant, Chris, 73
Teutsch, Carl, 129
Thriftmart, Inc., 70, 91, 101, 150
Toilet Goods Association, 217
Tousley, R. D., 9, 197
Trade on equity, 149, 182
Index
Trading stamps, 66-68, 106-107, 109 ' \
Transportation expense, 109, 110, 111,
117
Trefethen, Florence, 232
Turnover ( see Inventory )
Two Guys from Harrison, Inc., 73
Underhill, H. W., 129
Utilities, 55, 56, 100, 111
Value Markets, 180
Van de Kamp, Walter, 15, 16, 154
Voluntary Chain growth, 185-186
integration, 185-186
retail, 86-87
wholesale, 86
Walgreen Drug Co., 62
Warehouse expense, 109, 110, 111,
117
Weingarten, J., Inc., 17, 70, 91, 150
Weiss, E. B., 50, 77, 79
Westfall, Ralph, 232
Weston, George, Ltd., 180, 181, 184
White, Percival, 14
Wilt's Supermarket, 54, 56
Winn-Dixie Stores, Inc., 173, 178, 179,
181, 182
Winn-Lovett Company (see Winn-
Dixie Stores, Inc. )
Woolworth, F. W. Co., 62
Wrigley Stores Co. ( see ACF-Wrigley
Stores, Inc. )
Wyatt and Evans Food Stores, 179
Yoder, Wallace O, 67
Zimmerman, M. M., 18, 19, 21, 24, 25,
27, 28, 57, 121, 122, 154, 156,
157
0
VA~'\ •?
ycTwi
f[
1
,
■ —
;
i
— ■■ •
"~"™
.-
--
!
""■*"
"
M ... ..
■
.
-
"mm " ■
j
>.,._
)
. .,,
' ;
*
•~-~r-"-~--~~ _.
"~j
■
Supermarketing. main
658.878C486s
3 lEbE D32A^ hMbS
MARSTOW SCI&